Overdone on Cold Weather Theme?

CRUDE OIL 

March Crude Oil has eased back a bit from yesterday’s six-month high overnight but not by much. The market is still feeling the impact of the new sanctions on Russian oil, which has the potential to take 700,000 barrels per day from supply. However, Russia will still try to find work-arounds, and OPEC has excess capacity of more than 5 million barrels per day. Uncertainty over China’s demand is another negative factor. For the inventory reports this week, a Reuters poll of analysts has an average expectation for crude oil stocks to be -3.5 million barrels for the week ending January 10, with gasoline +2.7 million and distillates -1.0 million. Refinery runs are expected to be -1.0% to 92.2%. The arrival of wintry weather after a mild autumn also lends support, as it boosts demand for heating oil. Extreme cold forecast for the mid-section of the US all the way down to Texas and the Gulf coast could also reduce refinery activity. The PPI report today and CPI tomorrow could make things volatile, especially if the numbers come in hot, as that could make Fed reluctant to cut rates.

NATURAL GAS

March Natural Gas opened near the June highs yesterday but quickly sold off, and it extended its decline overnight. Traders were apparently disappointed that the market failed take out the June highs on its recent rally. Cold weather has finally arrived after a mild fall, but traders seem concerned that this has been fully absorbed by the market. The market also had also drawn support from the sanctions on Russia, which included some LNG facilities. The 6-10 and 8-14 day forecasts still show colder than normal temperatures dominating the lower 48, with the 6-10 showing extreme cold from the Plains to Appalachia, from the Canadian border to the Gulf coast. Colder than normal temps persist in the 8-14 day but are less extreme. The only areas with above normal temperatures are in California and western Nevada. For the weekly EIA storage report, a Reuters poll of six analysts has expectations for US gas storage to be -275 to – 227 bcf for the week ending January 10.

PRODUCT MARKETS

March ULSD rallied to its highest level since July yesterday, but it left a spike high that could limit further gains, as traders fear the market may have already absorbed the cold weather forecast. With the trade apparently looking for a modest decline in US supply this week, the market may be vulnerable if the draw is significant.

>Interested in more futures markets?  Explore our Market Dashboards here.