Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
Crude oil prices traded firm, with values gaining 50 cents to settle at 72.78 basis March. The higher trade was not surprising given accelerated attacks by the US against Iranian backed militias in the Middle East and the failed cease fire negotiations. Reports that Ukrainian drones had attacked a Russian refinery of Lukoil in Volgograd also encouraged buying despite reports of limited damage. Nevertheless, the market continued to focus on economic considerations with the strong US economy suggesting rates will remain high longer than previously expected.
There were reports that the powerful Iraqi faction that was responsible for dozens of attacks against US forces was pressured by Iran and ruling Iraqi parties to announce a suspension of attacks. The group, suspected as perpetrators of the attack that killed three US troops, announced a stoppage of all attacks on US forces to avoid a broader regional conflict.
Given the recent failure of heightened regional tension to support values, the market seems to be focused on macro elements for global supply and demand. On the supply side, expansion of production and increasing market share by non-OPEC producers is forcing adjustment in capacity plans, with Saudi Arabia unexpectedly announcing a downward adjustment in their long-range capacity plans. China also remains a major weight on the market as their growth remains below trend. The impact will be particularly notable on OPEC+ members, who are highly dependent on Chinese demand. The possibility of an inventory build in the latter half of the year despite supply curbs is keeping the market on the defensive. The threat of additional supply cuts should offer support near the 70-dollar area as the potential for an OPEC decision to restrain production remains in the background, along with the potential for OECD countries to use price weakness to rebuild their Strategic Reserves. Look for a consolidative range in the 70-76 area to remain intact for now.
The DOE report is expected to show crude stocks gaining 2.1 mb, distillate lower by 1.2 and gasoline up .5 mb. Refinery utilization is estimated higher by 1.0 to 83.9 percent.
Natural Gas
Action was muted today with low volume and tight ranges, as the March ended near unchaged levels at 2.082. Overnight trade saw the market attempt to rally on forecasts that showed an increase in demand potential of as much as 30 bcf in the 15 day outlook. The upside was brief, with prices trading lower for the majority of the session as LNG flows continued to be constrained by the Freeport outage and the reality of the forecast changes merely signaling a normalization in temperatures sunk in. the 9-day moving average now at 2.118 remains the key resistance level that needs to be violated in order to dig up any follow through. Minor support rests at the contract low of 2.021 and then at 2 dollars, and if that area is taken out, formidable support should arise near 1.94.
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