Crude Oil Inventories Report

Oil remains mostly coupled to the direction of the U.S. dollar and the euro and will remain in this pattern for the foreseeable future or until Europe moves into the background, which does not seem like it will happen anytime soon. As such it is uncertain if many market participants are going to pay much attention to this week’s round of oil inventories data as Europe and the U.S. are still in the midst of uncertainty, suggesting that this week’s oil inventory reports may not have a major impact on price direction. 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. The normal weekly reports get underway this afternoon when the API data will be released, followed by the more widely watched EIA data on Wednesday morning.

Projections for this week’s inventory reports are summarized in the following table. We can expect:

  • Mixed inventory data with a small increase in refinery utilization rates, which should result in a neutral weekly report
  • A modest draw in crude oil stocks with an increase in refinery utilization rates
  • A modest build in gasoline inventories and only a small draw in distillate fuel stocks as winter weather has still not arrived in most parts of the U.S., especially the large heating oil market along the north east.

If the reported numbers are in sync with projections, the year-over-year deficit of crude oil will narrow to about 8.2 million barrels while the overhang versus the five-year average for the same week will come in around 10.4 million barrels.

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Natural Gas and Crude Oil Market Outlook

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 crude oil is trading near the key technical support level of the mid- $94’s/bbl, the market broke down last week and the market has downgraded its crude oil view and bias at cautiously bearish for the short term.

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

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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.

 

Natural Gas Commentary

January natural gas futures were lower Monday, Dec. 12, fading to a $3.218/MMBtu session low and trading only as high as $3.271/MMBtu in early trade, the near month contract settled down $0.063 at $3.254/MMBtu as weather forecasts were revised to include milder conditions that could support a steady widening of the five-year-average storage overhang. Technical support for January natural gas is seen at $3.25, $3.00, $2.75 and $2.50 while resistance is marked near $3.50, $3.75, $4.00, $4.25, $4.50 and $4.75/MMBtu.

The market remains depressed by healthy storage and lackluster demand as traders were greeted in the new week by revised weather outlooks showing the eastern U.S. and a portion of the central region will see above-average temperatures through the upcoming 14-day period.

Hand-in-hand with mild weather, demand is seen only ticking higher driving storage levels down modestly and at a rate below both year-ago and five-year average pulls allowing more natural gas to stay in storage, providing little support for price advance.

Early projections for the U.S. Energy Information Administration’s Dec. 15 storage report covering the week ended Dec. 9, suggest a range of pulls from the upper 80s Bcf to the low 90s Bcf, comparing bearishly to a 142-Bcf five-year average pull and a drawdown of 154 Bcf reported for the same week a year ago. The drawdown would follow a similarly bearish 20-Bcf withdrawal in the week to Dec. 2 that left stocks at 3,821 Bcf, widening the overhang to the five-year average to 307 Bcf.

While storage and the delayed start of cold winter weather in key heat consuming regions drives lower the price of natural gas. The market is also watching a steady decline in natural gas directed rig counts and looking to some indication that the fewer number of rigs searching for natural gas will begin to impede production figures. Baker Hughes Inc. reported that for the week ended Dec. 9, natural gas rigs dropped 36, and now stand at 820, 128 rigs lower than last year’s count.

Additionally, on the production side, early winter production freeze-offs were reported mainly in the West over the report period ended Dec. 7, covered in the EIA’s latest “Natural Gas Weekly Update” issued Dec. 8. The EIA reported San Juan basin production fell 400 MMcf on Monday, Dec. 5, with most of the production recovered Dec. 6. “The production shortfalls this week were relatively minor compared to other major freeze-offs that have occurred in the past,” the EIA said.

While production begins to take some hits, consumption rates are rising despite the overall mild weather across the bulk of the country. The EIA reported domestic consumption rose 18.4% for the week covered in its Dec. 8 report. The largest gains came from the residential and commercial sectors, as well as the electric power sector, according to data.

Day-ahead, spot markets prices were also lower post-weekend, extending losses from the Friday session as the market assessed the revised weather outlooks and lower demand requirements on regional power grids and moved the market down accordingly. Deals at the benchmark Henry Hub were done from the upper $3.00s to $3.10s, off a sharp $.16 in deals done for Tuesday, Dec. 13, delivery with additional pressure from futures’ weakness. In the Northeast, Transco Zone 6 NY traded off an even more impressive $.34 in deals that spanned the $3.40s to $3.60/MMBtu as weather drives demand down.

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.

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