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Energy Brief for Dec 9.2022

by market analysts Stephen Platt and Mike McElroy

Price Overview

The petroleum complex settled under pressure, with crude off 44 cents at 71.02 and ULSD showing the largest declines of 8.61 cents per gallon. The closure of the Keystone pipeline remains in the background but failed to offer much support. The weakness was surprising given that the pipeline moves up to 620 tb/d of crude from Alberta to refiners in Illinois, Oklahoma and on to the Gulf Coast. The leak occurred near Steele City, Nebraska where the pipeline splits. Questions over the location of the leak persists. If the leak is located South of the junction where the pipeline splits, then the segment moving crude to Illinois refiners might be able to start more quickly. Nevertheless, the timetable for the restart is uncertain with past shutdowns having lasted up to two weeks.

The price action following the announced problems was disappointing given other bullish news remaining in the background. The supportive influences included the possibility that Russia will consider a reduction in output in retaliation for the price cap, along with reports that demand in India continues to be buoyant, with fuel demand rising to an eight-month high in November with fuel consumption up over 2.4 percent from the prior month. The relaxation of Covid regulations also continues to be ignored on ideas a quick transformation in mobility patterns will take time to develop. Economic concerns also remain as a key uncertainty as well. 

For next week, focus will be on the Commitment of Traders report and the decline in net speculative fund positions to 6-year lows, which suggests more interest in the firmer equity markets and oil companies as a safer alternative to the basic commodity. Another consideration will be the reopening timetable for the Keystone Pipeline, and whether Strategic Reserve sales will be made to make up for the shortfall, or if instead we see buying for the SPR given that prices are near the 70.00 level, which was indicated as the desired price at which purchases might be made, possibly through forward contracting. Low US prices make both policies possible, which could limit the impact on outright values but potentially help harden the contango that has recently emerged if purchases for the SPR are forward contracted.  

DTN WTI Crude Chart 12.9.22
DTN Jan Nat Gas 12.9.22

Natural Gas

The rebound that started midweek has filled the chart gap from Monday, as the January contract ended with a gain of 28 cents today at 6.245. The forecasts for colder temperatures into the second half of December have been maintained, pushing prices higher as risk premium is added back into the mix after a 2 dollar drop in values over the last three weeks. Background support was offered by recent production numbers, as lower 48 output has dipped back below 100 bcf for the last 3 days. Yesterday’s storage withdrawl came in at 21 bcf, well below estimates near 31, but was only able to temporarily slow the rally as prices resumed their upside push soon after the release. Today’s strong action signals near term follow-through that will find initial resistance near 6.42, which marks a 38 percent retracement of the drop since Thanksgiving, and beyond there at 6.76, eqating to a 50 percent retracement. Support should surface near 6.13 and then at the 6 dollar level.

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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