Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The turmoil in the financial sector continued to cause sharp losses in the petroleum complex as risk-off sentiment across commodities led to aggressive long liquidation and stop loss selling. The weakness has taken values down to levels for WTI prompt not seen since December of 2021. The extent and speed of the weakness has been surprising as this financial crisis has evolved quickly, with today’s news of the liquidity problems at Credit Suisse the next shoe to drop.
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. The uncertain economic environment has helped offset constructive forces tied to Chinese demand. The Monthly IEA report, which suggested that global demand growth was set to accelerate sharply over the course of 2023 from .7 tb/d in the 1st quarter to 2.6 mb/d in the 4th quarter is being questioned. Whether the increase in demand transpires along with the expected expansion in output from non-OPEC producers will need to be monitored given the uncertain interest policy and the impact that the weaker price levels might have given higher production costs.
The DOE report was ignored due to the macro environment. Commercial crude inventories rose by 1.6 mb while inventories of gasoline and distillate fell 2.1 and 2.5 respectively. Total stocks of crude and products fell by 1.8 mb. Disappearance levels for products remained weak at 19.1 mb compared to 20.7 last year, with propane showing the largest decline. Impressively, net export levels of crude and products rose to 3.5 mb compared to .8 last year. It will be interesting to see whether the DOE quickly undertakes a strategy to refill the SPR as previously indicated if prices broke below 70.00. Such action has potential to support the complex and reverse sharp declines noted the past few days.
Natural Gas
The market gave back all its recent gains, ending the session 13.4 cents lower at 2.439 and right back where we started the week. In a rare occurrence, outside forces played a role as economic concerns from recent banking issues pressured the petroleum complex and other commodities, spilling over to the natural gas. Inconsistent flows to Freeport also had a negative effect, as recent late cycle revisions have been substantially lower and changed the trend from what had been seen as improving to what is now sputtering. Production has regained the 99 bcf/d level recently and added a negative tone despite current expectations for colder than normal temperatures across the US over the second half of the month. Further weakness should find support near 2.40, and beyond there at the lows near 2.11. The failure to surpass the 9-day moving average over the last three sessions makes that level, currently at 2.60, firm resistance.
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