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MarketWatch

Refined Products
1.30.2015

Recap:  Oil markets drifted higher Thursday, except NYMEX ULSD (HO) where the front part of the curve (February, March and April futures) settled lower as traders squared their books ahead of February ULSD future's contract expiration today (along with RBOB).  ULSD's premium or backwardation built into these front months is now shrinking and making way for an expanding carry (or contango) starting with NYMEX ULSD's April futures contract. Check out the purple shaded box to the right showing a carry (premium in the outer months) that has increased from April 2015 to March 2016 to 17.41 cents, or an 11% premium in March 2016 vs. April 2015!  

Thursday Settlements: February NYMEX ULSD lost 1.34 cents to settle at $1.6184 while the incoming March contract lost 46 points to settle at $1.6047. February NYMEX RBOB gained 87 points to $1.3537 while the incoming March contract gained 1.43 cents to $1.3913. NYMEX (WTI) Crude gained 8 cents to settle at $44.53 while ICE Brent increased more, 66 cents to $49.13, again increasing the Brent-WTI spread up to $4.60 (last week it was $2.21).   

Currently, oil markets are mixed with NYMEX Crude up 26 cents to $44.79, ICE Brent up 5 cents to $49.18, NYMEX ULSD down 32 points to $1.6152, and NYMEX RBOB down 72 points to $1.3465. 

What is a carry (also called contango) and why is it important?  As we have mentioned before, a carry incentivizes those who own storage to use it as futures contact prices are higher in the future. This type of contango is evident in the NYMEX (WTI) Crude and ICE Brent Crude forward curve structure as well the NYMEX ULSD one.  For example, for NYMEX Crude, the carry from the nearby March futures contract ($44.53) to the outer January 2016 contract ($54.18) is $10.27, representing a 23% premium from March 2015 to January 2016. For ICE Brent, the carry from March 2015 to January 2016 is $9.44 or 19%. So as we continue to see oil analysts refer to crude oil inventories building to the point where we have historic crude levels not seen since the 1930s, increases in floating storage, and more leniency of crude oil definitions to enable more exports of minimally processed crude (or condensate), the U.S. has too much supply (and hence, a global oversupply issue)  and not enough demand or storage, creating cheaper prices today. However, as low prices force the rebalancing of crude oil production (reduction of new drilling rigs, producers shutting down, etc.) this process takes some time, but the futures market is telling us that the rebalancing of supply and demand is happening and once production is reduced, prices will rise -- and we can see it in those outer futures contracts. But for now, "global oil is so inexpensive now that using railroads to ship U.S. crude from the Bakken Shale field in North Dakota and Montana to the East Coast doesn't make sense, analysts have said. Refiners are bringing in more international oil, and that trend is likely to continue as low front-month prices encourage traders to store more oil on ships, Macquarie Group Ltd said in a note Thursday." (Dow Jones 1-29-15)

For delivery planning this weekend and next week, here is the 10-day heating degree day (HDD) forecast:  Fax-Alert Weather Service has forecasted the following increasing heating degree day (HDD) % from January 30th to February 8th: (HDD percentages below 100% indicate percentage lower than normal, while percentages above 100% indicate percentage increase of HDDs above colder-than-normal temperatures.) And, cold temperatures persist across the Northeast averaging 10% colder (some areas, 20%) for this time period. (See NOAA's temperature probability map below --the bluer/dark purple, the colder - just what a heating oil dealer dreams about!)

New York:  NYC 119%, Binghamton 119%, Albany 112%

New Jersey:  Newark 119%, Trenton 125%

Pennsylvania:  Philly  124%

Massachusetts:  Boston 114%, Worcester 113%, Chicopee 120%, Hyannis 107%

Connecticut: Hartford 113%, Bridgeport 117%, New Haven 116%

NH: Manchester 106%, Portsmouth 108%, Lebanon 111%, Concord, 109%

Maine: Portland 111%, Augusta 110%, Bangor 110%

Vermont: Burlington 113%, Rutland 113%

Rhode Island:  Providence 113%

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Natural Gas
1.30.2015

On Thursday, January 29th, the March NYMEX Natural Gas Futures Contracts began trading as the prompt-month, opening slightly below February’s settlement price at $2.864.  Tallying the intraday high of $2.870 in the initial minutes of trading, March stumbled downward to the low $2.80s forty minutes later.  Rising towards the 10:30AM EIA Storage Report release, the contract was slammed by news of inventories being significantly above the market estimate, and crumbled downward to meet the next hour in the $2.60s.  Steadying around 11:00AM, March recorded the intraday low of $2.672 around noon.  Finding no consolation in warm weather projections for the second half of February, March zigzagged around the $2.70 mark for the remainder of the session and sealed the day at $2.719 on Thursday.

The EIA Natural Gas Storage Report published on Thursday showed a 94 BCF withdrawal from storage for the week ended January 23rd – lower than the market estimate of 105 BCF.  Total working gas in storage was reported as 2,543 BCF; 14.6% above this time last year and 3.0% below the five-year average.

This morning in Globex, WTI Crude was up 30 cents; Natural Gas was down four cents; and, both Heating Oil and Gasoline were flat.

New England and New York cash prices were mostly higher in both regions.

 

Natural Gas Glossary

For access to Sprague’s full Natural Gas Market Watch Report including commentary not posted here, please send your request to natgas@spragueenergy.com or call 1-855-466-2842.

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