LNG Outtake Keeps Climbing

NATURAL GAS

After reaching a four-month high yesterday with a 25% increase in prices off it October low, January Natural Gas pulled back overnight. Technically, the market has reached into overbought territory, and stochastics have crossed into a sell mode from a high level, leaving the market vulnerable to a setback. A return to warmer than normal conditions this weekend in the eastern half of the US following last week’s cold snap should lower short term demand. The latest 6-10 and 8-14 day forecasts show warmer than normal temperatures from the Plains to the East Coast, but a pronounced colder than normal pattern has emerged west of there all the way to the Pacific, so outlook shows high demand out west offset by low demand in the east. For the weekly EIA storage report today, a Reuters poll has an average trade expectation calling for a net injection of 34 billion cubic feet last week (range +30 to +40). That compares with +41 bcf during the same week last year and a five-year average of +36. If the report comes in as expected, storage will be -0.6% from a year ago and 4.0% above the five-year average, not much different from the -0.4% and +4.0% the previous week. Strong demand and ever-growing export capability for US LNG continues to be a bullish influence. LSEG reports that the average amount of gas flowing to the eight big US LNG export plants has risen to 17.8 bcfd so far this month,  up from the record 16.7 bcfd in October. These flows are expected to increase further in coming months with new plants in Louisiana and Texas ramping up production.

CRUDE OIL

January Crude Oil is higher this morning off news that a Russian port at Novorossiysk on the Black Sea had suspended oil exports in the wake of a Ukrainian drone attached. The port paused oil exports and oil pipeline monopoly Transneft suspended crude supplies to the outlet. Crude oil shipments out of the port reached 761,000 barrels a day in October. Previous attacks hit processing facilities that seemed to affect gasoline and diesel supply more than crude. Countering the support from the strike is news that China’s factory output and retail sales grew at their weakest pace in over a year in October, which points to lower energy needs. This news follows a reassessment by OPEC this week in which they forecast a small global surplus of 20,000 barrels per day in 2026, which is a change from the 50,000 bpd deficit they forecast in October and their generally bullish view for the global supply/demand setup. Earlier this week, IEA noted that the latest round of US sanctions have not deterred Russian output, but they have led to a sharp increase in floating storage around Asia, as China and India appear to have held back buying Russian crude in the wake of the sanctions. The sanctions are also forcing the divestiture of overseas oil processors by the affected Russian oil firms, which puts product supply into question. Yesterday’s EIA stocks report came in at the bearish end of expectations for crude oil and the products, especially crude oil, which had a much larger increase last week than expected. All three stock levels are below four year averages, but crude made a substantial jump. Net crude imports increased last week due to a decline in exports.

PRODUCTS

The product markets drew support overnight from reports of a Ukrainian drone attack on a Russian oil port, and this has pulled prices back within the vicinity of this week’s highs. Yesterday’s EIA report leaned bearish for the products as gasoline and distillate stocks registered declines that were smaller than expected, but at least implied demand was up from the previous week if still behind a year ago. The report showed US gasoline stocks were -0.9 million barrels vs -1.9 million expected, and distillate stocks were -0.6 million barrels vs -2.0 million expected. Implied gasoline demand was 9.028 million bpd vs 8.874 million the previous week and 9.383 million a year ago, and implied distillate demand was 4.018 million bpd vs 3.710 million the previous week and 4.098 million a year ago.  Weather conditions are turning milder this week after the cold snap over the weekend, which will limit heating demand over the near term.

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