Energy Brief for Jan 25.23
by market analysts Stephen Platt and Mike McElroy
The petroleum complex traded mixed, with crude attracting early buying but failing to follow through on weakness to gasoline and ULSD. Uncertainty over the growth path for the Chinese and US economies provided the basis for pressure on products. Although a smaller than expected increase in crude inventories provided modest support, the weakness to the products and build in crude inventories at Cushing discouraged more aggressive buying.
The DOE report showed crude inventories rose by .5 mb compared to expectations for an increase of 1.6. Cushing stocks continue to build, rising by a large 4.3 mb to 35.7. Gasoline stocks rose 1.8 mb while distillate fell .5. Refinery utilization was higher by .8 at 86.1 percent. Total commercial stocks of crude and products rose 4 mb and stand at 1,234 mb compared to 1,184 a year ago. A fall-off in US import levels helped net exports of crude and products recover to 2.4 mb/d from .9 last week. Disappearance rates of all products remained lackluster at 19.4 mb/d compared to 22.4 a year ago. On a cumulative basis, disappearance levels are off 11.4 percent, with gasoline down 3.3 percent and distillate off 10.6 percent.
Look for a modest decline in valuations, particularly in products. Supply availability is improving as indicated by the recent recovery in US crude inventories, good Russian availability in Asia, and an easing of tightness at Cushing. In the background were reports that OPEC was unlikely to change current policy on February 1st, when the Joint Ministerial Monitoring Committee meets. The next full meeting of OPEC+ is not until June. Although nervousness persists ahead of the product embargo and import ban by Europe and the G-7 respectively on February 5th, the seasonal pullback in demand as we move into the 2nd quarter, along with improving availability from OPEC members, suggests a more balanced market verging on surplus.
The brief move higher on Monday and early Tuesday ran out of steam as the market made new lows today, with the March ending the session off 14.2 cents at 2.915. Weather forcasts into early February saw decreased HDD estimates, quickly dousing what little upside momentum the market had generated. Tomorrow’s storage report is also having a drag on sentiment, as the estimated 82 bcf draw would be well below the 5-year average of 185, and if realized would put total stocks more that 5% above the 5-year average. These comfortable storage levels with winter winding down will require a severe or extended cold regime in February to spark any substantial upside movement. With March taking out 3 dollar support today, there isn’t much in the way of a drop to 2.50. Upside risk remains substantial, but will require cold temperatures to emerge sooner rather than later, with 3.14 and then 3.48 as resistance on a bounce.
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