The petroleum complex traded in a steady to firm fashion with scattered support apparent in response to the political turmoil in Venezuela.
The build in US inventory levels remain a background consideration and a constraining influence on values as gas and crude inventories continue to surge. Gasoline inventories reached a record high in the most recent week rising by 4.1 mb compared to 2.7 mb. The increase emerged despite a decline in refinery utilization of 92.9 mb from 94.6 in the prior week. In crude, inventories rose by 8 mb to 1094.2 mb and well above estimates for a increase of .5 mb. Domestic production remained at 11.9 mb/d compared to 9.9 mb a year ago. Net import levels surged to 6.2 mb compared to the prior week’s level of 4.6 mb. The one bright spot was distillate which saw inventories off .6 mb. Sluggish demand for gasoline continues to be apparent with the cumulative product supplied at 8.9 mb compared to 8.7 mb/d while distillate was 4.7 mb/d compared to 3.8 mb.
The supply side given the increase in rig counts of 10 in the most current week might be a key focus as US production expands and takes market share from other producers. Although concerns over the availability of Venezuelan might remain in the background, we suspect that any further declines in production might be limited and that the onus will be on OPEC to manage production levels. Already there does appear some loss of market share by Saudi Arabia to Russia in China and the large inventory overhang particulalrly of gasoline might be a negative influence on values. In addition global economic concerns remain in the background despite the strong recovery in US equity values. This should pose resistance near current levels near 54.00 per barrel while the OPEC Agreement and Venezuelan concerns should provide underlying support toward the 50.00 area basis March. For the gasoline we suspect the bulk of bearish news has been reflected and that some recovery in the crack might be apparent as we move into refinery maintenance.
Nat Gas prices recovered from recent weakness on forecasts suggested brutally cold weather in the 6-10 day forecasts. Prospects that demand will surge helped uncover shortcovering as the coldest weather in over a decade emerges next week. As the 6-10 day forecast suggests the Eastern Half of the country will remain below normal keeping demand for heating high. Early estimates for next weeks EIA report are for inventories to decline by 183 bcf compared to 126 bcf last year and 150 bcf on the five year average. The prospect, the large draws will persist into February along with good export demand for LNG is raising fears over the adequacy of stocks which are expected to be 13.4 percent below the five year average. Although production remains at record high the recovery today should followthrough and carry values up toward the 3.36 area basis March.
Charts Courtesy of DTN Prophet X
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options ADMIS position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to. The authors of this piece currently maintain positions in the commodities mentioned within this report. Charts Courtesy of DTN Prophet X, EIA.
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