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Crude Futures Drop as Global Demand Slows

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Gasoline futures and spot prices experience significant declines, primarily in the Midwest, as crude futures plummet. Traders are hesitant to make purchases until the anticipated cold weather arrives, despite forecasts suggesting an increase in distillate demand.

Saudi Arabia’s Price Cut Reflects Declining Global Demand

The overnight announcement of Saudi Arabia reducing its Official Sales Prices confirms the acknowledgment of lower global demand, causing crude prices to sink. Psychological support for West Texas Intermediate crude can be found at $70/bbl, but during the previous market session, the NYMEX February WTI contract plummeted as low as $70.13/bbl before regaining some ground.

Crude Weakness Predicted with Commodity Index Rebalancing

Expectations of a decline in crude prices were realized as large commodity funds rebalance their portfolios, such as the Bloomberg Commodity Index and the Goldman Sachs Commodity Index. Citigroup estimates that approximately $2 billion worth of WTI length may exit both funds this week, equaling approximately 27,000 long positions in crude.

Oil Bulls Remain Cautious

While some individuals argue that oil is undervalued, there has been a lack of vocal support from oil bulls this month. Former Goldman Sachs’ commodity head, Jeff Currie, appeared on Bloomberg television to discuss the promising future for crude in 2024. Currie highlighted low stocks, depleted spare capacity, and near-record levels of demand. However, considering the poor performance of market bulls in 2023, many remain apprehensive about making bold predictions for the new year.

Gasoline Prices Drop to Multi-Month Lows in U.S. Spot Markets

Gasoline prices in select U.S. spot markets hit multi-month lows on Monday morning. In the Great Lakes states, both gasoline and ethanol were priced at approximately $1.59/gal, while ethanol Renewable Identification Number (RIN) credits remained around 80 cents each.

As a result, the potential cost of an E10 blend is just over $1.50/gal, suggesting that certain retail stations in the region may be able to sell gasoline this month for as low as $1.99/gal.

The NYMEX RBOB futures also experienced a decline alongside crude, with market participants predicting that the Energy Information Administration will estimate U.S. gasoline demand for last week to be around 8 million b/d.

To counter the winter demand slump, some refiners are prioritizing turnarounds that were initially scheduled for March and April, moving them up to January and February instead. Motiva’s Port Arthur refinery in Texas, for instance, might begin maintenance work on two major crude distillation units as early as next week.

With the NYMEX February RBOB contract potentially reaching a multi-year low of about $1.97/gal this week, it currently stands at $2.0324/gal after falling by 7.31 cents earlier.

Historically, December was the month when the annual low for gasoline prices occurred, but a seasonal low in January would break that trend.

In addition to gasoline, diesel futures also softened, despite a somewhat supportive weather forecast for the second half of January. The expectation is that an increase in heating oil demand will redirect some product away from diesel channels.

The NYMEX February ULSD contract was down by 4.45 cents at $2.564/gal just prior to midday.

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