Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex traded on the defensive, with May crude settling off 48 cents at 86.43. Selling interest was linked to a softening of the Israeli offensive in Southern Gaza and heightened pressure by the US and other western powers for a cease fire. News that Israel would withdraw more soldiers from Gaza, leaving only one brigade, raised hopes for easing tensions. Hamas indicated there had so far been no progress at the new round of talks. In addition, the failure of Iran to take retaliatory action this weekend against Israel following their attack on a consulate which killed a number of high-ranking Iranian Revolutionary Guard leaders helped encourage the pullback as risk premium was tempered.
Expect setbacks to be limited, with the 88-90 range ultimately tested in May crude despite the potential for dollar strength and higher prices to dull demand. The uncertainty associated with the Middle East and appearance that Russia will reduce exports to levels consistent with the agreement will be watched closely. Some uncertainty over production outside OPEC exists, with moderation in US output forecasts noted due to the weakness in natural gas prices and the possibility that associated crude oil production might be impacted as capital investment is throttled back. The movement higher in interest rates and the associated impact on the dollar and economic growth might adversely impact demand, with the focus on the US CPI report released Wednesday for direction of Fed policy. The market is looking at a balanced stock situation in crude, and as we progress through the year any small movement in the projected supply-demand balance might have an inordinate impact on valuations.
The DOE report on Wednesday is expected to show a build of 2.4 mb in crude, with gasoline and distillate stocks estimated to have declined by 1.8 and 1.2 mb respectively. Refinery utilization is expected to gain .5 to 89.1 percent.
Natural Gas
The market managed to find good buying interest to kick off the week, with the May contract adding 5.9 cents to settle at 1.844. There was limited fundamental backing for the move, with forecasts remaining mild and strong wind generation expected to further restrain demand. A small uptick in Freeport loadings to .9 bcf despite overall lackluster flows uncovered some buying interest. Signs of increased Asian demand for LNG at these low prices may have kindled some positive vibes, teamed up with the hopes for a recovery in volume at Freeport. The swing higher pushed back above the 9 and 20-day moving averages, with minor resistance near 1.85 followed by 1.90 which marks the high of our recent range. Support comes in near 1.80 followed by 1.75.
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