Written Commentary
by Stephen Platt and Mike McElroy
Price Overview
The petroleum complex continued to grapple with opposing forces as early weakness emanated from the API report late yesterday showing an unexpected build in crude stocks of 2.15 mb, and on news that Russia would be resuming flows on the Druzhba pipeline after being shut down for nearly a month due to payment issues with Ukraine. Surprising CPI numbers this morning brought out buying interest aided by mixed signals from the DOE report, ultimately leading the market to solid gains. Crude ended the session higher by $1.43, gasoline lead the complex on a large stock draw, gaining 11 cents, while heating oil rose just over 7 ½ cents.
The DOE indicated a build of 5.5 mb for commercial crude stocks, well above expectations, with the SPR drawing 5.3 for a net build of .2. Gasoline also surprised but to the downside with a 5.0 mb draw. Distillate stocks increased more than expected, gaining 2.2 mb. Production up ticked 100 tb/d to 12.2 mb/d, while total stocks gained 13 mb and refinery utilization jumped a hefty 3.3 percent to 94.3. Crude and products continued to see net exports, coming in this week at 376 tb/d verses 546 last week.
The CPI was indicated at 8.5 percent verses expectations at 8.7, with core up .3 verses .5. This cooled inflation fears and increased hopes that the Fed will not need to be as aggressive with rate hikes. Equities rallied sharply and the demand outlook improved for the petroleum complex.
The strong close came up just shy of the 9-day moving average near 92.00, and a settlement above there could turn the near-term bias upward. The recent low near 87.00 will need to be violated to break out of our recent range and resume the downtrend, with 85.00 the next likely support.
Natural Gas
With the worst of summer heat appearing to be in the rear-view mirror, the market had lost some volatility over the last week as it searched for new reasons to fluctuate. Weakness seen on Monday failed to garner follow-through as production has been in focus. The recent drop has helped underpin prices as maintenance has taken output from highs above 98 bcf to the 97 area the last two days. With the suggested return of Freeport capacity sooner than originally expected, the market remains will supported on any pullbacks. The 9-day moving average at 8.00 was taken out today with the market gaining 37 cents to settle 8.202, opening the door to a test of the 8.48-8.50 area. Initial support is likely near 7.90, but a close below 7.50 is still necessary to return to the downtrend that started in late July. The EIA report tomorrow is expected to show a 39 bcf build verses the 5-year average of 45.
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