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Energy Brief for Dec 12.2022

by market analysts Stephen Platt and Mike McElroy

Price Overview

The petroleum complex reacted to bullish news from Friday that had failed to move the market at the time. Values settled over 2 dollars higher at 73.17 following a test of Friday’s lows at 70.08 basis January. TC Energy’s inability to determine the cause of the leak on the Keystone Pipeline raised concerns over how long it will be shutdown. The possibility that the outage will adversely affect movement into the Cushing delivery hub, where inventories at 23.9 million barrels are already low, provided support on an outright basis, and to nearby crude versus the more forward months. In addition, diesel values firmed, reflecting fear that heavier crudes will be more affected than the lighter crudes, which helped firm the ULSD cracks by over 4.90 per barrel in the nearby contracts. 

Along with the pipeline leak, other factors were at work. These included the possibility that Russia will consider a reduction in output to retaliate for the price cap, demand in India continuing to be buoyant with fuel demand rising to an eight-month high in November, and the easing of Covid restrictions in China. Although economic concerns and increases in interest rates remain a consideration for the demand side, we do not see it as sufficient to put much additional pressure on values from current levels.

DTN WTI Crude Oil 12.12.22
EIA Weekly Cushing chart 12.12.22
DTN Nat Gas 12.12.22

The DOE report on Wednesday will be watched closely. Expectations point to a 3.9 mb draw in crude and a build of 2.3 and 2.5 mb in distillate and gasoline stocks, respectively. Refinery utilization is expected to decline by .2 to 95.3 percent. Cushing stocks will also be watched closely for any impact from the Keystone leak.  

Natural Gas

The market again experienced a substantial move coming out of the weekend, this time gapping  higher by more than 70 cents overnight before running out of momentum late in the session to end with a gain of 34 cents at 6.587. Colder forecast revisions drove the move, as the US model saw an increase of over 60 bcf in demand compared to Friday’s runs. LNG offered support to the move, with over 12 bcf of flows reported for four straight days. This high rate of exports will become more important as we move closer to Freeport’s return and the potential for an additional 2 bcf/d of outflows. The rally lost steam into the afternoon as mid-day forecast runs extracted some of the demand gains from Sunday, highlighting the fickle nature of these large swings that in this instance were driven in large part by substantial cooling in the 11-15 day portion of the forecast, which is considerably less reliable than the 1-10 day period. Today’s test above 7 dollars makes that level a key resistance line on a settlement basis. The close at the low end of the days’ range points to a near term bias to fill this mornings gap down at 6.39.

The authors of this piece do not currently maintain positions in the commodities mentioned within this report.

Charts Courtesy of DTN Prophet X, EIA, Reuters


Learn more about Stephen Platt here

Learn more about Mike McElroy here

Futures and options trading involve significant risk of loss and may not be suitable for everyone.  Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.  The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM.  The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.

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