Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex saw firm trade today as the crude oil ended higher by $1.04 on the February contract at 72.82, while the RBOB added 2 cents and heating oil saw gains of just over 5 cents. Prices had been much stronger at mid-morning, with the crude hitting an intraday high at 74.61 before settling in the middle of the day’s range.
Geopolitical jitters ignited the early strength as attacks by Houthi rebels on a ship in the Red Sea heightened safety concerns in the region. A statement from BP that they would temporarily halt shipping through the Suez Canal due to these risks heightened volatility into the US trading session on fear that other shippers would soon follow suit and intensify the logistical fallout.
Statements from Russia over the weekend suggesting that they would cut 50 tb/d of oil exports in December also aided the move, but the momentum had run its course by mid-session as trade digested the realities of the current risks posed by the rebel actions in the Red Sea.
The settlement above the 72.80 area now targets the 75.20 level, which would mark a 38 percent retracement of the recent break. Resistance in the 73.60-74.00 range will need to be chewed through on the way. 72.00 now becomes initial support followed by 70.80.
Natural Gas
Upside momentum continued today as the January contract added 1.2 cents to settle at 2.503. After a month and a half of consistently lower prices, it is not surprising to see values recover albeit on shaky footing. Potential for cooler temperatures in early January has piqued buying interest, aided by healthy LNG flows that have held near 15 bcf/d since late last week. Short covering has obviously added fuel to the bounce. Production that has held above 108 bcf/d for nearly two weeks remains the main headwind, and if the cooler trend to temperatures in the back half of the forecast fails to materialize the recovery could be short lived. The push through the 9-day moving average and violation of the down trend channel resistance is a near term positive. Today’s highs near 2.60 marking initial resistance, with a push above there targeting 2.75 and then a 38 percent retracement of the break since early November at 2.85. Failure to maintain the buying momentum could see a quick retrenchment that would find minor support near 2.47 and 2.38 before a run to the lows.
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