CRUDE OIL MARKET FUNDAMENTALS: The rally in crude oil has run out of steam, and the market seems to be shifting its focus back towards US production. The International Energy Agency (IEA) said that the US will overtake Russia to become the world’s top crude oil producer by 2019 at the latest. Russian output is capped just below 11 million barrels per day (bpd) by the Oil Producers Agreement, while the EIA pegged US production was at 10.27 million bpd in their latest weekly report. In a little more than two weeks, crude oil prices recovered more than $5 in losses and have climbed to within $3 of testing the late-January highs. Crude oil and the products had a bumpy ride to start out this week, as they saw a sharp turnaround before posting moderate gains for Monday’strading session. There were reports that a key terminal in Libya had seen a significant slowdown in exports, which was an early source of strength to the market. Additional support came from weekend comments by the Saudi Arabian Energy Minister, who stated that his nation’s first quarter oil production would be lower than their quota level from the Oil Producers Agreement. The minister also hinted that the output curbs may be eased next year. This could start to weigh on crude oil prices if other cosigners hint at larger quotas in 2019. A strong earthquake in Papua New Guinea has caused concern about near-term supply flow from that nation, and this lent support to prices as well.
PRODUCT MARKET FUNDAMENTALS: RBOB and ULSD were seeing modest losses early today, but they remained fairly well supported near the top end of their recent upmoves. Both markets are on eight-session winning streaks, posting moderate gains on Monday. There have been ideas that colder than normal weather over some portions of the US may delay refinery maintenance windows, which for RBOB and ULSD should result in more near-term supply. This week’s US stocks readings are forecast to show modest decline for both gasoline and distillates. Implied gasoline demand has come in above the 9 million barrel per day levels for four weeks readings in a row. This indicates relatively strong demand for what is generally thought to be the “off-season” for driving in North America.
NATURAL GAS: April natural gas tested the 50 day moving average at $2.713 early yesterday, but it could not close above. However, it was the first time the market has traded up to the moving average since February 5th. Support was due to forecasts for colder temperatures for the first week of March in the Northwest and into the mid-continent. The early estimates for this week’s inventory report call for a 71-bcf decline versus the five year average that shows 118-bcf decline. Total inventories last week totaled 1,760 bcf, which was 19% below the five year average and 26% below year-ago levels. We continue to think that the $2.580 level in April natural gas will provide support, especially now that the managed money traders have reduced their net long position to a more manageable 88,763 contracts, down from 218,152 just three weeks ago. A possible “last gasp” of winter could support prices, as there are some below normal temperatures into the first week of March in the forecast. Resistance is seen at $2.774, half way back from the recent sell-off, followed by the 100 day moving average at $2.810. Close-in support is at $2.600.
TODAY’S MARKET IDEAS: While the IEA’s forecast that US production will overtake Russia’s has caused some early headwinds for energy prices, recent bullish international supply developments are helping underpin crude oil and the products near their recent highs. However, the shift in focus towards the US supply situation could result in some turbulent price action today and duringWednesday’s session as well. Near-term support for April crude oil is at $63.10, while resistance is at $64.95. Near-term support for April RBOB is at $1.9820 while near-term support for April ULSD is at $1.9580.