The Energy Space

*On December 27th, EOXLive published a 2013 outlook for crude oil and natural gas. If you have not received it or would like a copy, please email

Energy Price Outlook

The oil market may remain in a mixed trend in the near-term as it has in the last three sessions, with underlying factors somewhat balanced. Recent support has been given by improved signs of economic growth, COT data, the grounding of Shell's oil rig in Alaska, and the ramp-up of the expanded Seaway pipeline this week. Environmental groups have already called on the president to suspend drilling permits in the Arctic. Opposing pressure will be provided by the possibility of a rebound in crude oil stocks in Wednesday's DOE report, potentially weaker demand in light of higher prices, and from technical resistance near $94.00. The pipeline expansion should help WTI against Brent crude, and we entered a spread recommendation in June futures at -$14.25 on Friday morning, with a target at -$8.00.

Yesterday's trade settled 10 cents higher in WTI and 9 cents higher in Brent. The market seemed to gain support once again from the prospect of improved economic conditions. The Chinese PMI data a week ago helped to kick-start the rally, while the payroll report and fiscal cliff solution gave another boost last week. The delay of Basel 3 capital increases for banks helped the European markets trade higher yesterday. These factors also led to a new five-year high in the S&P 500 index on Friday, which is also a precursor to future growth. Large funds have picked up on these developments, and added 18,992 contracts to the managed money net long through last week. The non-commercial category saw an inflow of 3,371 contracts.

The Brent-WTI differential may continue to narrow in the near-term, as the Seaway pipeline is scheduled to ramp-up to full rates this week. The pipeline runs between Cushing Oklahoma and Freeport Texas, and will begin transporting 400 kb/d of WTI crude to the Gulf Coast rather than the 150 kb/d that was the case previously.

Global Economic & Dollar News

» Basel III Regulations were relaxed in order to give banks four more years and additional flexibility to build up cash reserves.

» The White House may use the framework of spending cuts that were being discussed in Dec as a starting point for new talks in front of the debt ceiling. Pres Obama, however, still wants to raise $600B in new revenue through cutting deductions and closing loopholes.

» Senate Minority Leader McConnell reiterated over the weekend that the tax issue is over and that the focus needs to turn to spending.

Upcoming Events

Tue - API Inventories (4:30pm EST)

Wed - EIA Weekly Oil Inventories (10:30am EST)

Thu - ECB & BOE Meetings

Thu - Natural Gas Inventories (10:30am EST)

Jan 16th - Iran-IAEA Meeting

Jan 29-30 - FOMC Meeting

Mar 1st - Sequester Begins

May 31st - OPEC Meeting


EIA Inventory Preview

Crude oil stocks may reverse the downward trend that usually takes place at year-end and begin building again. Our expectation is for a build of 2.0 MB this week. The five-year average shows an increase of around 41.6 MB between the last week of the year and the peak in inventories in early-May, as refiners add to stocks in anticipation of the summer demand season. In the current week, the five-year gains 0.6 MB. Support for inventories may be offered by a rebound in imports, which typically recover strongly in the first couple weeks of the year. Demand may add as well, as consumer demand may have been rationed due to late-Dec price gains as well as worries over the fiscal cliff. Some spillover effects of the cliff may have included weakness in equity prices, which may thus have offered a reverse wealth effect. On the flipside, pressure on inventories may come from utilization levels that ended 2012 more than 5.0% above the five-year average.

Gasoline inventories typically build sharply into early-Feb before supplies begin being shipped for increases in demand tied to late-spring and the summer driving season. We would anticipate a build of 3.0 MB in gasoline and 3.0 MB in distillates. The level of distillate stocks recovered late in 2012 due both to higher refinery production as well as weakness in demand.

Natural gas inventories may fall 170 bcf this week, as heating degree days increased to around 238 from 212-220 previously. Temperatures were generally below-normal across the majority of the country from west to east, with the exception of the northern Great Plains and parts of the desert Southwest. The 238 degree day reading is higher than anything seen last season, where the peak was made at 218-220. Inventories fell 192 bcf that week in what was the largest draw of the season. Given increased production levels being seen this year, however, we wouldn't anticipate any draw that large....555 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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