Natural Gas and Crude Oil Outlook Today

The natural gas market is maintaining its view and bias at cautiously bearish. The surplus that is building in inventory versus both last year and the five-year average is going to get harder to work off until we see cold over a major portion of the U.S.  For the medium term, it is uncertain if natural gas will be able to muster any kind of strong upside rally absent some very cold weather for an extended period of time.

Although WTI is still trading above the key technical support level of the mid- $94’s/bbl, the market broke down Wednesday and it is uncertain if prices are going to hold the $94/bbl level after yesterday’s strong sell-off. As such the market has downgraded its crude oil view and bias at cautiously bearish for the short term.

 

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Weekly Oil Inventories Reports

The API data yesterday showed across the board builds. The API reported a small build in crude oil stocks versus an expectation for a modest decline in crude oil inventories of about 0.5 million barrels as crude oil imports increased and refinery run rates also decreased by 1.4%. The API reported basically no change in gasoline stocks versus projections for a modest build and an expected build in distillate fuel inventories.

The market was expecting a modest draw in crude oil stocks and a modest build in gasoline and distillate fuel inventories this week. The report is somewhat bearish for the entire complex. The report has resulted in selling in the market overnight. The market remains hostage to the evolving situation in Europe that has been unfolding once again this week, with inventory data a secondary driver. The API reported a build of about 0.5 million barrels of crude oil with a 0.1 million barrel build in Cushing and a build of about 1 million barrels in PADD 2. This is bullish for the Brent/WTI price spread, which has been somewhat range bound since the middle of November. On the week, gasoline stocks were about unchanged while distillate fuel stocks built by about 1.2 million barrels.

The more widely watched EIA data will be released this morning.  Whether or not the market will react to anything that comes out of the EIA this morning will be dependent on what revolves around Europe today.

Oil remains mostly coupled to the direction of the USD and the euro and will remain in this pattern for the foreseeable future or until Europe moves into the background. At the moment all market participants are continuing to follow the tick by tick direction of equities and the U.S. dollar (driven by Europe), as they are both the primary price drivers for oil. Even with the fundamentals and geopolitics starting to impact price, it is the macro trade that dominates at the moment. As such this week’s oil inventory report could remain a secondary price driver at best and only impact price direction if the actual EIA data is noticeably outside of the range of market expectations for the report.

Crude Oil Commentary

Crude futures were treading water in early trading Tuesday, after recovering from Monday’s loss overnight.  Light, sweet crude for January delivery on the NYMEX settled up $2.37 at $100.14/bbl.

Crude oil prices elevated as the euro gained and the dollar fell. The euro zone’s sovereign-debt crisis has weighed heavily on the market for several weeks. Oil futures often trade inversely to the dollar, as the dollar-denominated commodity becomes more expensive for holders of other currencies.

There were several reports seemingly important to the oil market, though little seemed to gain traction, from Iran’s military exercises in the Strait of Hormuz, a key Middle East oil shipping channel, to OPEC reducing its forecast for 2012 crude demand, citing the potential for global economic decline. The International Energy Agency also lowered forecasts slightly for 2012 demand, citing economic worries.

Meanwhile, U.S. November retail sales grew less than expected, signaling a weak start to the holiday shopping season.

Global equities pulled back after a Dow Jones report said that German Chancellor Angela Merkel has rejected suggestions to raise the funding limit for the European Stability Mechanism, or ESM, which currently stands at €500 billion. The fund goes into effect next year and may run alongside the €440 billion European Financial Stability Facility.

Crude Oil Market

The International Energy Agency (IEA) released its monthly oil report this morning. As expected and as the EIA did, they lowered their forecast for oil demand growth versus last month’s report. They lowered their forecast for 2012 oil demand growth by 200,000 bpd compared to the November report. Following are the main highlights from the report. OPEC will also be releasing its report today one day ahead of the OPEC meeting.

Crude futures prices moved higher in November and early-December on seasonal demand strength and tight supply. Bullish impetus also came from news of a potential EU ban on Iranian crude imports. These factors outweighed escalating economic risks, but resulted in uneven price gains among the key benchmarks. At writing, Brent stood near $107/bbl, with WTI around $98/bbl.

  • A more precarious economic backdrop and weaker 4Q11 data – particularly for OECD Europe – curb oil demand projections for 2011 and 2012 by around 0.2 mb/d. Global oil demand is expected to average 89.0 mb/d by 2011, a rise of 0.7 mb/d on 2010, before gaining a further 1.3 mb/d in 2012 to reach 90.3 mb/d.
  • Global oil supply rose by 0.9 mb/d to 90.0 mb/d in November from October, driven by lower non-OPEC supply outages. A yearly comparison shows similar growth, with OPEC supplies standing well above year-ago levels. Non-OPEC supply growth averages 0.1 mb/d for 2011 but rebounds to 1.0 mb/d in 2012, with strong gains expected from the Americas.
  • OPEC crude oil supply in November rose to the highest level in more than three years, up by 620 kb/d to 30.68 mb/d, with Saudi Arabia and Libya accounting for 80% of the increase. OPEC ministers will meet on 14 December in Vienna to review the market outlook. The ‘call on OPEC crude and stock change’ for 2012 stands at 30.2 mb/d, near recent OPEC output levels.
  • Global refinery crude throughputs fell by close to 1 mb/d in October, as OECD autumn maintenance hit its seasonal peak and Chinese runs remained weak. Preliminary data show runs rebounding sharply in November, despite poor margins, to meet higher winter demand. 4Q11 estimates are largely unchanged at 75.1 mb/d, rising to 75.8 mb/d in 1Q12.
  • OECD industry oil stocks declined in October by a steep 36.3 mb to 2 630 mb, or 57.2 days of forward cover. The inventory deficit versus the five-year average widened to 61.9 mb, from 40.0 mb in September, and crude and middle distillates dominated the October decline. November preliminary data show a counter-seasonal, 6.9 mb build in OECD industry stocks.
  • Updated medium-term projections show global oil demand rising from 88.3 mb/d in 2010 to 95.0 mb/d in 2016, growth of 1.1 mb/d per year on average. A stronger global liquids supply outlook now sees upstream capacity attain 101.5 mb/d by 2016, average yearly growth of 1.3 mb/d, with the outlook for Iraq, Libya and the Americas stronger than in June. Meanwhile, global crude distillation capacity additions for 2010-2016 are trimmed by 0.9 mb/d, but remain a substantial 8.7 mb/d.

Market Outlook Today

The natural gas market is maintaining its neutral view and bias, but could get more bullish if the near term futures contract closes above the $3.51/MMBtu level. The gas storage surplus that is building is going to get harder to work off until we see cold weather over a major portion of the U.S. In the medium term, many are skeptical about the ability of natural gas prices to muster any kind of strong upside rally absent some very cold weather for an extended period of time.

WTI crude oil is still trading above the key technical support level of the mid- $94’s/bbl and along with the changing fundamentals and geopolitics, the market is keeping its view and bias at cautiously bullish. The economic outcome in Europe this week will certainly influence the outlook for economic growth and the need for oil in the near term. WTI and Brent are once again back to being in sync with the direction of the U.S. dollar and euro, but are also being driven by the ongoing geopolitical situations in the Middle East.

Earlier most risk asset prices were higher, as shown on the chart below.

Description: Description: http://www.advancedenergycommerce.com/PubImages/16/chart10.gif

Market Outlook Today

The natural gas market is maintaining its neutral view and bias, but could get more bullish if the near term futures contract closes above the $3.51/MMBtu level. The gas storage surplus that is building is going to get harder to work off until we see cold weather over a major portion of the U.S. In the medium term, many are skeptical about the ability of natural gas prices to muster any kind of strong upside rally absent some very cold weather for an extended period of time.

WTI crude oil is still trading above the key technical support level of the mid- $94’s/bbl and along with the changing fundamentals and geopolitics, the market is keeping its view and bias at cautiously bullish. The economic outcome in Europe this week will certainly influence the outlook for economic growth and the need for oil in the near term. WTI and Brent are once again back to being in sync with the direction of the U.S. dollar and euro, but are also being driven by the ongoing geopolitical situations in the Middle East.

Earlier most risk asset prices were higher, as shown on the chart below.

Description: Description: http://www.advancedenergycommerce.com/PubImages/16/chart3.gif

Market Outlook Today

The natural gas market is maintaining its neutral view and bias, but could get more bullish if the near term futures contract closes above the $3.51/MMBtu level. The gas storage surplus that is building is going to get harder to work off until we see cold over a major portion of the U.S. In the medium term, many are skeptical about the ability of natural gas prices to muster any kind of strong upside rally absent some very cold weather for an extended period of time.

WTI crude oil is still trading above the key technical support level of the mid- $94’s/bbl and along with the changing fundamentals and geopolitics, the market is keeping its view and bias at cautiously bullish. The economic outcome in Europe this week will certainly influence the outlook for economic growth and the need for oil in the near term. WTI and Brent are once again back to being in sync with the direction of the U.S. dollar and euro, but are also being driven by the ongoing geopolitical situations in the Middle East.

Earlier as a new day of trading gets underway in the U.S., markets are mixed.

Description: Description: http://www.advancedenergycommerce.com/PubImages/16/chart5.gif