Energy Brief for Feb 9.24
by market analysts Stephen Platt and Mike McElroy
Crude oil prices traded on both sides of unchanged before settling with a small gain at 76.92. The lackluster tone reflected caution in advance of the CPI release tomorrow, which is expected to show inflation rose .2 percent month over month. Indications that the Fed will move slowly in reducing interest rates due to the strength in the underlying economy continues to limit buying interest. Geopolitical tension remained heightened in the Middle East, with moves on Rafa by the Israeli’s expected to keep pressure high to end the conflict by Western governments including the US.
The market will be watching the OPEC Monthly report tomorrow and the IEA report scheduled for release on Friday. The wide divergence in demand forecasts between the two organizations will be assessed. Look for crude availability to improve as lower throughput to refineries limits support. In addition, the Chinese New Year, which last until February 24th, should limit industrial activity. The drone attacks against Russian refining facilities appears to be increasing the volume of crude for export as well. These higher levels have the potential to undermine Russia’s pledge to OPEC to curb sales.
The appearance that crude oil supply availability has not been affected by the conflict in the Middle East, along with a continued recovery in US production and low refinery activity due to maintenance, should keep crude supplies ample at a time when Chinese demand will be limited during their New Year celebration. Subsequently, prices could be confined back into the 70-76 range in the absence of fresh challenges to crude oil supply availability. Near term support exists near 74 and overhead resistance is at 78.00 with the 100-day moving average at 76.84 today.
The DOE report on Wednesday is expected to show a build in crude inventories of 2.6 mb, a drop in distillate of 1.6 and a decrease in gasoline stocks of 1.0 mb. Refinery utilization is estimated to have dropped .5 to 81.9 percent.
Further erosion in demand expectations kept the market on the defensive as the March lost 7.9 cents to settle at 1.768. The cooling expected into the coming weekend was downgraded further with the 15-day forecasts losing approximated 20 bcf in demand. The feeble end to winter coupled with ample production levels and restrained LNG flows due to the Freeport issues have kept steady downward pressure on values. The September 2020 lows at 1.795 were taken out without much of a fight, with the 1.55-1.60 area the next target, and failing ther the June 2020 low at 1.432 is a possibility. RSI dropped below 20 percent today as a near term technical bounce becomes more likely. Prices would need to push above the 9-day moving average, which is currently near 1.98, to even begin to hint at a change of trend.
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