Oil inventories drop as demand forecast brightens while natural gas looks to weather forecast for price confidence

Last week’s data shows a new yearly low for oil stocks as Goldman makes an optimistic prediction for demand growth in the year comes from Goldman. Elsewhere, natural gas prices soared, but any further gains will rely on cold weather in key demand territories. 

Oil trading 

According to the latest EIA data, oil stocks dropped to their lowest level since March 2020 in the last reporting period. US inventories fell by 9.9m barrels. A sign that oil use is starting to pick up again in the US? Maybe not.  

For instance, gasoline stocks rose 2.5m barrels in last intake, following on from the previous period’s rise in gasoline production. More gas might be being produced, but is it being used? The rise in gasoline stocks suggests otherwise. 

The drop in storage, however, has caused some analysts to take a bullish stance. Goldman continues its optimistic oil outlook. It expects global oil demand to recover to pre-pandemic levels of 100 million bpd by August this year. 

Last month, Goldman praised the $1.9-trillion stimulus package proposed by President Joe Biden, saying it could boost U.S. oil demand by 200,000 bpd. Further bullish factors for oil, according to Goldman, are Biden’s moratorium on federal land drilling, the revocation of the permit for Keystone XL, and the moratorium on all oil & gas leasing in the Arctic National Wildlife Refuge. 

Will recovery happen? Time will tell. OPEC and allies have already committed to production cuts, so for now, supply will likely remain tight. Saudi Arabia has even said it will cut production further than its OPEC obligations require – all in a bid to protect prices. 

At the time of writing, WTI and Brent futures were trading above $55 and $57, so the measures may already be taking effect. Still, there is a long road ahead until August. Lockdowns have not lifted. Covid-19 is still very much here. From now on, it’s a waiting game.  

Natural gas trading 

Natural gas cash prices soared last week as colder weather is anticipated in key demand regions across the United States – but continued high prices depend on how much cold air makes its way into weather systems. 

Last week, prices were as high as $3.095 with prices in the Northeast US, where low temperatures hovered in the single digits much of the week, led the charge, according to Natural Gas Intelligence. 

The big question is will temperatures stay cold? Currently, the entire Northeast US is under a blanket of snow, so that is a big yes. In theory, this should lead to a bullish drawdown as residential heating is likely to be in full force right now. Potentially good for traders, as this points towards high gas demand in the coming week.