Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
Turmoil in the financial sector in response to the failure of Silicon Valley Bank and its potential impact on the tech sector and other financial institutions lead to sharp losses overnight, with a low of 72.30 registered in April crude. Buying surfaced at the lower levels and pushed values back above the 76.00 area. The bounce was linked to ideas that the recovery in the Chinese economy will underpin demand and that the liquidity risk in the US will be contained. Buying interest may have also been spurred by ideas the US would put out bids for SPR purchases if values fall much further.
Despite the concerns over a liquidity crisis, pressure on the Fed to raise rates has been ratcheted down. Although a hit to consumer confidence has likely been recorded, the ultimate impact on the overall economy and inflationary potential is still unknown. Given this uncertainty, the Fed will likely ease off the brakes in this environment until a clearer view of the impact of these banking failures on employment levels and inflationary trends emerges. The CPI report tomorrow has been relegated to a secondary consideration for now, even though it appears that underlying strength to the economy continues, which should help support the crude and product markets until a deeper risk to the underlying economy becomes apparent. Subsequently, despite today’s brief violation, support in the 74-75 range basis prompt crude should hold, with choppy trade up toward resistance in the 81-82 area likely.
The DOE report Wednesday will likely have a limited influence given the movement in interest rates. Expectations point to an increase in crude inventories of .6 mb, a drop in distillates of 1.2, and decrease in gasoline stocks of 2.2 mb. Refinery utilization is expected higher by .5 to 86.5 percent.
Natural Gas
Prices perked up today following a week of steady selling pressure, as the April contract added 17.6 cents to settle at 2.606. Fundamentals were not impressively bullish, but minor revisions cooler in the 15-day forecasts and the start of a period of below normal US temperatures and increased demand sparked buying interest that flushed out short covering at mid-morning. Backing up the positive tone were strong LNG flows that exceeded 13 bcf today, and signs that Freeport may again be ramping up intake. With the settlement above 2.60, the next resistance arises at the 9-day moving average near 2.66. Initial support now moves up to the 2.50 area, and beyond there at 2.40.
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