Written Commentary
CRUDE OIL
March Crude Oil was lower overnight but yesterday’s range for the most part. The market continue to assess the implications of the accelerated US sanctions against Russian oil, which have reportedly buyers in India, China, and elsewhere in Asia scrambling to source crude oil from the Mideast. Reuters reported today that Indian Oil Corp, the country’s top refiner, has purchased 7 million barrels of spot Middle Eastern and African crude oil via tenders. There is also the prospect that the incoming Trump administration will aggressively expand sanctions on Iran, which could limit their ability to export and further tighten available supply. US production could fill the gap as regulations are relaxed under the new administration, but that could take some time. In the meantime, US crude supply is the lowest since April 2022. Global diesel prices have increased as well. An analyst quoted by Reuters said there are concerns the sanctions could impact refinery runs in India and China, cutting their diesel production and exports to Europe. Chinese government data released today showed the nation’s oil refinery throughput fell for the first time in more than 20 years in 2024, with the exception of the pandemic-affected year of 2022. Reuters also had a story pointing out problems in China’s oil refining sector in which they said up to 10% of the nation’s oil refining capacity faces closure in the next ten years as an earlier-than-expected peak in Chinese fuel demand crushes margins. A stagnant economy and an aggressive move to electric vehicles and natural gas powered trucks have reduced demand of petroleum based products.
NATURAL GAS
March Natural Gas is sharply lower this morning but is still inside yesterday’s big range up. Prices have rallied 44% in the last month and 29% since January 3, so it is not surprising to see the bulls get a little anxious. EIA Gas storage for the week ending January 10 was 3,115 bcf, -258 bcf from 3,373 the previous week. This was within trade expectations of -275 to -227, but the market sold off after the report was released. Storage was down 2.1% from a year ago but still 3.5% above the five-year average. This was the first time storage was below year ago levels since January 2023. The 6-10 and 8-14 day forecasts still show below normal temps for the most part, but far less extreme. There are even some above normal temps showing up in the northern Plains (as well as California). Extreme cold hits in the next five days.
PRODUCT MARKETS
March RBOB opened near the highs yesterday and sold off sharply, which is a negative technical development. Momentum indicators are overbought and US gasoline stocks came in higher than expected last week. March ULSD is also lower this morning and is looking a bit top-heavy. The recent rally has been met with a decline in open interest. Colder weather helps US demand, but US supply increased more than expected last week.
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