Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex traded mixed with February crude settling up 12 cents at 71.56 while ULSD showed the best gains, rising 2.81 cents to 2.5508 while the gasoline closed lower by .52 at 2.0524. The mixed tone reflected a lack of fresh news related to the energy complex, with reports on global supply/demand trends from OPEC on December 13th and the IEA Monthly Report scheduled for release on December 14th. Caution was also apparent ahead of the US CPI report scheduled for release tomorrow and the meetings at five central banks including the US Federal Reserve this week and the implications for interest rate trends and the dollar. Support was apparent on a bid for March 2024 crude oil by the Biden Administration for 3 million barrels as it gradually refills the Strategic Petroleum Reserve.
Upside caution was apparent following the conclusion of the COP28 Climate Summit last week and comments by the UN Secretary General that the key to success was for member nations to reach agreement on the need to phase out fossil fuels. The comments ran counter to those of OPEC’s top Energy Ministers who are meeting today at the 12th Arab Energy Conference and are urging a rejection of the COP28 recommendations targeting fossil fuels, instead urging that the Organization target carbon emissions given their heavy reliance on oil as a source of revenue.
Trade participants are still skeptical of the ability of OPEC members to cut output levels in order to balance supply and demand. Shipping data will be monitored over the next few months to assess whether the participants are abiding by the voluntary cuts.
The market will be sensitive to crude stock levels as recent increases in US inventories and high production have been a headwind to values. Stocks have trended toward normal ranges following the tight levels reached in September. The DOE report will be watched closely for trends, with crude stocks expected to be lower by 1.5 mb, distillates up 1.2 and gasoline up 2.4 mb. Refinery utilization is estimated to have gained .5 to 92.0 percent.
Natural Gas
The week started off with a gap lower open as the market had little trouble pushing through the 2.50 level, trading down to an intraday low at 2.294 before settling with a 15 cent loss at 2.431. The headlines remain the same, as weekend weather revisions further decreased demand expectations and production re-tested the 109 bcf/d level. Even with LNG flows reaching 15 bcf, little buying interest was garnered as the downtrend stayed firmly intact. With December looking unlikely to produce any period of above average demand, trade appears to be throwing in the towel on this winter as storage levels are substantial and therefore able to withstand potential cold snaps. Minor support in the 2.13-2.15 range is all that stands in the way of a test down to 2 dollars and then the early 2023 lows near 1.945. The obvious initial target of a recovery would be the overnight gap at 2.538 and then the 9-day moving average at 2.66.
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