Written Commentary
by Stephen Platt and Mike McElroy
Price Overview
The petroleum complex traded on both sides of unchanged today. Early strength that saw values approach the 90.00 level in March lacked follow-through after reports that OPEC+ will stick to planned production increases of 400 tb/d despite entreaties from top oil consumers to ramp up output at a quicker pace. In addition, the market failed to respond to the DOE report which showed a draw in crude inventories of 1 mb against expectations for a million-barrel increase. The report continued to reflect resilient demand amid current high prices and low inventories. The fallback in values from the highs saw an associated decline in the backwardation with the spread moving from 4.62 premium March into 4.03 on an intra-day basis. The weakness might be the first sign that inventory tightness is easing as we move through the 1st quarter as the IEA had suggested in their January Monthly Report. Subsequently compliance rates of OPEC+ will be watched closely on whether they are regaining production capacity following recent shortfalls.
The DOE report showed commercial crude inventories falling by 1.0 mb, gasoline stockpiles rising 2.1 and distillate continuing to decline, falling by 2.4 mb. Total stocks excluding the SPR fell by 5.8 mb. A surge in crude imports was noted to 7.1 mb with net imports reported at 4.7 mb compared to 6.2 and 4.7 in the prior week. The jump in crude imports might have helped narrow the backwardation. Disappearance for all products remained robust at 21.4 mb but was below last week’s torrid pace, with gasoline and other oils lagging the previous week. Refinery utilization fell 1 percent to 86.7.
Natural Gas
After an easing of prices yesterday that coincided to a brief stint of warmer temperatures across the US, the market returned to its upside push as Winter Storm Landon rumbled across a large swath of the country from Texas to Maine, leaving heavy snow, ice, and cold temperatures in its wake. The March contract ended with a gain of 75 cents at 5.501. With a heightened concern for freeze-offs, production was already showing signs of decline today, with early runs indicating a drop to 90.5 bcf/d compared to yesterday at 93.5. These rates will be watched closely as the week progresses, and also after the cold spell has passed into this weekend to see how quickly they recover. Tomorrow’s storage report is estimated to show a 277 bcf decline, sharply above the 5 year average of 150. With some colder temperatures now being signaled in the back half of the 15 day forecast, the possibility of 6 straight weeks of 200+ draws has emerged. The trade above 5.50 today has opened the potential for a run to the October highs above 6.00. Any talk of less than expected fallout from the storm over the remainder of the week could lead to a quick pullback that would find little support before the 5 dollar level, and beyond that all the way down to the 100 day moving average near 4.55.
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