January CPI Applies Downward Pressure On Energy Futures

Energy markets were mixed overnight with diesel prices continuing to rally after a healthy bounce in Monday’s session, while gasoline and crude oil prices had modest losses. The sellers stepped in more eagerly after the latest read on inflation suggests that the FED has more work to, not less, in order to tame prices.

January’s CPI report showed inflation at .5% for the month and 6.4% for the past year, which was slightly higher than the “official” estimates, and we saw some modest selling of 2-3 cents in refined products in the 10 minutes following that report, which temporarily wiped out the gains in ULSD.  Equities have been choppy in the wake of the report as well, so we could be in for yet another back-and-forth trading session.

Monday saw a pullback in oil prices after the White House announced another sale of crude oil from the SPR of 26 million barrels, equivalent to about 1.5 days’ worth of domestic demand. The latest sale, after the SPR has already been drawn down to its lowest level in 40 years, is not part of a new strategy to lower prices, but rather part of a congressional mandate made years ago that’s still being enforced.

OPEC’s monthly oil market report kept estimates for global oil supply & demand unchanged from last month but noted that stronger than expected economic activity to end 2022 in several key economies. The cartel’s oil output ticked lower by 49,000 barrels/day during January with cuts by Saudi Arabia and Iraq offsetting increases in Nigeria, Venezuela, Angola and Kuwait.  The report also highlighted the substantial strengthening of refinery margins last month and predicts that global output will continue to drop in the next month due to heavy maintenance, much of which was deferred last year during the record margin environment.

The EIA’s monthly drilling productivity report forecasts that oil and gas production will increase in all of the major shale basins across the US in March, even though rates for new wells and legacy production are both seeing year on year declines. The count of drilled but uncompleted (DUC) wells is also increasing, which bodes well for the predictions that US oil production will reach a record this year, even though rates are still about a million barrels/day below pre-pandemic levels.

Israel is exporting its first crude oil cargo ever, as development of new offshore fields in the Mediterranean progress thanks to an agreement on territorial boundaries brokered last year.  More output from the Lebanese side of the boundary is expected to come online later this year, offering some much-needed alternatives for European buyers.   

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