Oil prices surged above $75 for the first time since October based on strong supply and demand fundamentals. Not only are we seeing cold weather demand around the globe but also strong US manufacturing data from the ISM is suggesting strong energy demand for manufacturing.
This comes as we are seeing signs of strong compliance by OPEC and Its favorite co-conspirator Russia with production cuts and a potential drop in Iranian oil exports as market players are fearing sanction enforcement by the incoming Trump Administration.
Yet oil pulled back from the $75 area as reports surfaced that President Trump is considering a national economic emergency declaration to allow for a new tariff program. And what we found after the discredited Washington Post story that President Trump was going to go easy on sanctions is that sanctions are bullish for the dollar.
This report came from CNN and caused the dollar to surge and caused a backdrop of oil, but oil might not be able to ignore the bullish fundamentals even with the rising dollar.
Still. President Trump’s quest to reduce energy prices may come with the help of a stronger dollar. In fact, if it weren’t for the dollar oil it would probably be trading at $85 instead of $75.
The American Petroleum Institute (API) seemed to slow down the momentum a little bit for a product after reporting big builds and diesel and gasoline but a big drawdown in oil. API reported that Crude oil inventory fell by 4.022 led by a huge 3.115 million barrels drop in the Cushing Oklahoma delivery point.
Yet there was a massive 7.331 million barrels increase in gasoline supply and a 3.201 increase in distillate inventories raised eyebrows.
The gasoline crack spread fell apart in part because of the API report but it also concerns that this coming Arctic blast and snowstorm will reduce the demand for gasoline as people get snowed in. Yet the heating oil crack is staying strong as the demand to stay warm is going to be incredible.
Reuters reported that OPEC oil production likely fell in December, based on a survey that suggested the UAE saw the largest decline in output due to field maintenance.
That reduced the country’s output by some 90,000 bpd, contributing to an OPEC-wide monthly decline of 50,000 bpd, as it offset production gains elsewhere. Iran’s output also fell, the survey suggested, by 70,000 bpd. Russia, meanwhile, also reported lower production numbers for December, with the daily average at 8.971 million barrels daily, which was below the level agreed upon with OPEC+ as part of the production control deal.
Reuters also reported that Iran is pushing to recoup 25 million barrels of oil from China that has been stuck for six years in Chinese ports due to sanctions imposed by then-U.S. President Donald Trump, three Iranian and one Chinese source familiar with the matter said. Trump is returning to power on Jan. 20, and analysts say he is expected to tighten sanctions again on Iranian oil exports to limit Tehran’s income, as he did during his first term as president.
Natural gas after a big surge yesterday pulled back and traders tried to assess the weather forecasts.
At first, many forecasters were saying that after the cold waves in January, we would see some relief in February.
Yet some forecasters know they are flipping those forecasts from warmer to colder in February. That came as natural gas bounced off support that should signal a retest of recent highs.
A real old-fashioned winter means that complacency and the natural gas that we have seen over recent years can disappear quite quickly.
As we have seen many times in commodity markets when we think that supplies are insurmountable then all of a sudden record demand changes the equation low prices can cure low prices but in the natural gas market low prices record demand and the potential for one of the coldest winters that we’ve seen in years is creating this situation that could cause a potential major price spike in natural gas.
EBW Analytics says that “the February natural gas contract volatility remains elevated with price moves of at least 24.5¢/MMBtu in each of the past three trading sessions.
EBW says that while very cold weather is durable and production freeze-offs are on the high end of expectations, January's physical market strength may not translate to February's risk premiums. They say that natural gas production freeze-offs near 6 Bcf/d may still deepen further as the Marcellus flirts with single-digit temperatures Thursday. Repeated, enormous weekly withdrawals can still drive January towards a record monthly storage draw.
EBW says that ll, the weather appears likely to shift into a milder pattern into early February—depriving the NYMEX front-month contract of the high demand/supply freeze-off combination necessary to drive contract deliverability premiums higher. Eventually, while steep January cold may lop off long-term storage surpluses, spring NYMEX contracts may see downside over the next 30-45 days as supply strength overshadows demand to suggest bearish leanings into spring.
Yet not so fast. Accu Weather is saying that according to their latest forecasts, February temperatures will stay below normal.
If that is the case, you may need to start buying later-dated options as well.
Oil Price Is reporting that the state of Alaska is suing the Biden Administration over the federal government’s decision to severely restrict acreage in an upcoming oil and gas lease sale, seen as a violation of a Congress mandate.
The state argues in a complaint that the Biden Administration’s decision to offer the minimum possible amount of land in the mandatory lease sale for the Arctic National Wildlife Refuge violates Congress’ express call for oil and gas leasing and development on the Coastal Plain.
Moreover, Alaska’s Department of Law says that the new severe restrictions on surface use and occupancy “likely make any development economically and practically impossible.”
We are praying for California.
Fox Weather is reporting that A state of emergency has been declared in Southern California as fierce wildfires fueled by powerful Santa Ana winds continue to rage. Thousands of residents have been forced to evacuate their homes as flames tear through coastal communities, including Santa Monica and Malibu. Three major wildfires – Palisades, Eaton and Hurst fires – are currently burning out of control, driven by one of the strongest Santa Ana wind events in over a decade.