Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex traded mixed, with crude settling 10 cents lower while gasoline, distillate and the crack spreads showed strong gains. Support continued to emanate from the OPEC+ cut in production announced Sunday, along with the declining level of US inventories. Offsetting the strength has been good availability of prompt barrels, along with the temporary agreement to resume oil shipments through the Turkish port of Ceyhan between Iraqi and the Kurdish Regional government. The agreement allows Kurdish oil to be marketed and exported by Iraq’s state owned marketing company while the Kurdish Regional Government will have control over an account at the Iraqi Central Bank. The agreement will be in effect until the budget bill is approved by Parliament.
The unexpected OPEC+ cut aims to reduce output by an additional 1.16 mb/d, on top of the 2 mb/d already in place since November of last year. Saudi Arabia said it would be cutting output by 500 tb/d, the UAE by 144, Kuwait by 128, and Oman of 40 tb/d. Output from Algeria and Kazakhstan will remain off by 48 and 78 tb/d respectively. We suspect the numbers take into consideration the 500 tb/d production cut of Russia that had been previously announced. Given current underproduction relative to targets, the cut is likely to equal between 700-900 tb/d overall.
The DOE report continues to show declining US inventory levels. Crude stocks were lower by 3.7 mb, while gasoline and distillate stocks fell 4.1 and 3.6 mb respectively. Cushing stocks fell 1 mb to 34.2. Total stocks of crude and products fell by 11.5 mb. Refinery utilization fell to 89.6 percent from 90.3 last week. Higher crude imports of 7.1 mb helped reduce total net exports of crude and products to 2.1 mb/d compared to 3.0 mb last week. Disappearance for all products totaled 20.6 mb/d compared to 20.5 last week and 19.8 in the prior year. Propane and residual continue to show the largest declines for the year at 27.1 and 17.9 percent respectively, while gasoline disappearance is unchanged against last year.
The recent consolidation in values reflects uncertainty over demand and the availability of Russian cargoes. Some reduction in availability might be apparent as the price cap on Russian prices limits additional sales. In addition, we believe US miles traveled will be impressive this summer due to pent up demand. How quickly the Chinese economy recovers will also be key to the outlook, along with how aggressively they buy crude at the higher prices given recent stockpiling. In the near term, we expect limited downside with the 100-day moving average at 77.08 key support, with upside potential toward 91.00 basis prompt crude during the summer.
Natural Gas
Minor upside action was seen over the last two sessions, with yesterday’s small gain followed by a settlement 4.9 cents higher today at 2.155. The respect of the 2 dollar level despite continued negative fundamental influences may signal some exhaustion from the bears. A minor drop in production back toward 99 bcf over the last two sessions was the only supportive input, as weather demand remains poor and LNG exports have seen a temporary slip. Tomorrow’s storage report is estimated to show a 23 bcf draw from stocks compared to the 5-year average change of 0. The 9-day moving average was tested today, but no follow-through could be generated. The last time we saw a settlement above the 9-day was on March 3rd. with a move through there finding the next resistance level at the 20-day moving average now at 2.37. Key support remains at the 2 dollar level, and below there near 1.80.
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