CRUDE OIL
March Crude Oil fell to the 200-day moving average overnight but managed to bounce. The trade is pondering the implications of the threatened tariffs on Canada and Mexico. President Trump said this week that he still plans to have them go into effect on February 1. OPEC+ is scheduled to meet on Monday. The trade is waiting for their response to Trump’s efforts raise US production as well as his statements that OPEC should lower prices. Some have brought up the possibility of a price war between the US and OPEC+. In the past when Saudi Arabia has boosted production to reclaim market share, oil prices have collapsed, so they may be reluctant to engage in a price war. OPEC+ is currently holding back 5.86 million barrels per day, and they already have a plan in place to start increasing production in April. Yesterday’s EIA report came in neutral for crude oil but bullish for diesel. Crude stocks increased slightly more than expected, but distillate stocks fell sharply, as refiners cut production amid winter storms and the cold weather boosted heating oil usage. Despite the increase in crude oil stocks last week, they remain close to six-year lows for this point in the season.
NATURAL GAS
March Natural Gas is near unchanged this morning after a mild follow-through rally from yesterday’s mild reversal higher. For the EIA storage report today, the Reuters poll calls for US gas storage to be -304 to -332 billion cubic feet for the week ending January 24, which would be substantial. This reflects expectations that usage was very heavy during last week’s extreme cold. The five year average draw for this week is 182 bcf, and last year storage fell 326 for the week. Last week’s report showed a slightly smaller than expected draw, and US supply climbed back to a surplus to year ago levels after falling to a deficit for the first time in a year the previous week, which was a disappointment for the bulls. The 6-10 and 8-14 day forecasts show a mix of colder than normal temperatures in the northern US and warmer than normal in the south. Areas with extreme cold are limited to the Pacific Northwest and northern Rockies close to the Canadian border. The cold is less severe and not as widespread, and traders could be seeing see the window for big weekly draws beginning to close. Reuters reports that Germany is expanding its natural gas import options to replace Russian supply, a drive intensified by the suspension of Russian gas flows via Ukraine that began on January 1 and by President Trump’s stated desire for the US to export more LNG to Europe
PRODUCT MARKETS
Distillate stocks fell more than expected last week in the wake of the extreme cold that gripped much of the US. Gasoline stocks increased more than expected, but implied demand was higher than the previous week and higher than a year prior. March ULSD fell below the 200-day moving average on Monday but only briefly, and it has held above that line since.
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