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Refined Products

Recap: Overshadowing an earlier report indicating adherence to OPEC's agreed upon production cuts, rising U.S. shale production pushed oil futures to their lowest level in almost a week. In its monthly report, OPEC hinted that preliminary reports signal compliance by its members to the agreement. February WTI fell $1.40, or 2.67%, to settle at $51.08 a barrel, while march Brent slipped $1.55, or 2.79%, settling at $53.92 a barrel. 

February RBOB fell 5.2 cents, or 3.2%, to $1.549 a gallon, while February heating oil  lost 3.9 cents, or 2.4%, to $1.609 a gallon.

Technical indicators shifted momentum to the downside, as slow stochastics have crossed to the downside. Once again, February WTI failed to hold at its 10 and 30-day moving averages, proving them to be key areas of resistance. Coming into Wednesday, we would look for a run at $50. Resistance remains at the 10 and 30-day moving averages, which are respectively $52.44 and $52.87. Focus will be on the inventory report numbers due out Thursday.

Fundamental News: OPEC said its 13 members produced 33.085 million bpd in December, down 220,900 bpd from November.  Saudi Arabia's oil production is estimated to have fallen to 10.474 million bpd in December from 10.623 million bpd in November.  Under the agreement, Saudi Arabia had agreed to bring its output down to 10.06 million bpd between January and June.  OPEC cut its forecast of supply in 2017 from non-member countries following pledges by Russia and other non-members to join OPEC in cutting output.  OPEC expects non-OPEC supply to increase by 120,000 bpd this year, down from 300,000 bpd last month.  OPEC slightly increased its 2017 world oil demand growth forecast to 1.16 million bpd from a previous estimate of 1.15 million bpd.  It estimated that the call on its crude in 2017 would be 32.1 million bpd, just below the output target of 32.5 million bpd.  OPEC revised up its 2017 forecast of total US oil output by 230,000 bpd due to a rebound in drilling and shale production growth.

OPEC's Secretary General said "so far, so good on the OPEC cut agreement."

Saudi Arabia's Energy Minister, Khalid Al-Falih, said that the surprising strength of the oil market is the main reason why OPEC could end output cuts by the middle of the year.  He said OPEC and Russia may not need to extend the cuts when they expire in June. 

Saudi Aramco's Chief Executive, Amin Nasser, said the oil company was working on building its oil and gas production capacity to meet future demand growth.  However, he did not say that there were immediate plans to expand Aramco's oil production capacity beyond the current 12 million bpd. 

The IEA's Executive Director, Fatih Birol, said oil price gains will trigger a significant increase in US shale output as OPEC and other producers cut supply.  He said US shale oil production will react strongly.  He added that it will make sense to produce a lot of shale plays in the US at $56 to $57/barrel.  

Russia's Lukoil will account for 15% of the cut in production that Russia will make in January under the OPEC and non-OPEC agreement to limit output. 

The Houston Ship Channel was closed to inbound vessels on Wednesday due to fog.  There were 38 vessels waiting to dock. 

IIR reported that US oil refiners are expected to shut in 1.048 million bpd of capacity in the week ending January 20th, cutting refining capacity by 225,000 bpd from the previous week.  IIR expects offline capacity to fall to 973,000 bpd in the week ending January 27th. 

Early Market Call - as of 9:00 AM EDT

WTI - Feb $51.62, up 54 cents

RBOB - Feb $1.5485, down 2 points

HO - Feb $1.6246, up 1.57 cents 

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Natural Gas

Wednesday, January 18th, saw the front-month NYMEX Natural Gas Futures Contracts open at $3.317, nearly ten cents below Tuesday’s closing price of 3.412.  A calm start to the day soon gave way to steady buying, as prices rose from 9:30AM through the subsequent hour to mark the intraday high of $3.371 sixty minutes later.  Stepping cautiously lower as midday approached, the contract then buckled as forecasts failed to inspire confidence in market demand.  Falling to the intraday low of $3.282 at 12:40PM, a brief ascent to peak above the $3.32 level ultimately fell through as February closed lower on Wednesday at $3.302.

The EIA Natural Gas Storage Report is due out at 10:30AM today.  The report is expected to show a 240 BCF withdrawal from storage for the week ended January 13th.  This compares to a 178 BCF withdrawal at this time last year and a five-year average withdrawal amount of 170 BCF.

This morning in Globex, WTI Crude was up 59 cents; Natural Gas was down three cents; Heating Oil was up two cents; and, Gasoline was up slightly.  Additionally, cash prices were slightly lower in New York and New England.

Natural Gas Glossary

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