Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
Crude oil prices failed to follow through on early buying that was linked to yesterday’s API report showing an unexpected decline in stocks, along with a revision downward by the EIA indicating a significant slowing in US crude production in 2024. Instead, profit taking linked to the DOE report helped pare gains and led to a more cautious tone in crude with values settling 55 cents higher at 73.86.
The pressure in response to the DOE report was moderated by a sharper than expected decline in product inventories and low refinery utilization, which helped attract support as the crack spreads strengthened. The March gasoline crack reached a high at 21.35, a level not seen since late July, while the 2-oil crack surged to over 44 basis March, which had not been seen since December of 2022. The strength reflects strong economic activity, tightness in Europe, and an increase in commuter activity as work from home declines. In gasoline, disappearance levels for January showed an increase of 1.4 percent, which was restrained by harsh weather conditions in the past month and helped maintain ULSD demand as secondary stocks were rebuilt.
The DOE report showed crude inventories rising by 5.5 mb while gasoline inventories fell 3.1 and distillates were off by 3.2. Overall stocks of crude and products fell 4.5 mb. Refinery utilization continued to fall, reaching 82.4 percent, off .4 from last week and 87.9 a year ago. Weekly gasoline disappearance reached 8.8 mb compared to 8.1 last week and 8.4 last year. Distillate disappearance was 3.6 mb against 3.8 last week. Total net exports of crude and products fell to 1 mb/d from 2.5 previously.
While talk of a cease fire in Gaza continued to circulate, the Israeli position hardened. Offsetting the political concerns were macro forces. A slowing of production growth in the US and stronger than expected growth in demand might moderate stock builds in the latter half of 2024, but uncertainty over whether OPEC will continue to restrain supplies and growth prospects for China should hamstring values in the 70-76 range basis prompt crude.
Natural Gas
Prices continued their downward creep, testing 2 dollars yesterday and violating that level today to reach an intraday low at 1.956. The market remained under pressure for the majority of the session before closing with a loss of 4.2 cents at 1.967. Weather remains the issue, with above normal temperatures likely rebuilding stocks over the next couple of reports to offset the recent large drawdowns. Estimates for tomorrow’s release point to a draw of 76 bcf compared to the 5-year average of 193. The poor close and lack of fundamental positives portends a near term test of the 1.94 area that marks the lows from early 2023. The oversold level of the market and signs of a colder temperature regime late in the month should limit losses much beyond there. A recovery will need to push beyond the 9-day moving average currently near 2.066 to kindle any technical buying interest or short covering.
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