Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
Prices kicked off the week under extensive selling pressure, as the crude oil lost over 3 dollars to settle at 67.12 basis July, while the gasoline and heating oil were lower by 11 and 5 cents respectively. The weakness accelerated early in the session as stops were elected below the 68 area and quickly lead to a drop to the intraday low at 66.80. Weakness emanated from concerns over Fed actions, with Wednesday’s meeting expected to produce a pause in rate increases, while sentiment is swinging toward a return to hikes next month. Monthly reports from OPEC and the IEA due out tomorrow also amped up worries about downward revisions to demand expectations.
Concerns which include higher than expected supplies from Russia, Iran and Venezuela, expanding production in some non-OPEC countries, and economic uncertainty in China and the US have managed to outweigh the additional output cuts recently announce by Saudi Arabia.
Despite these concerns, global stocks are likely to decline into the second half of 2023. An announcement late last week by the DOE that they would be purchasing 3 mb of crude oil for the SPR may begin to underpin the market, with an additional 3 mb set to be purchased in the near future. The poor close today opens the chance for further downside near term, with 66.00 the next level of psychological support. If sentiment can turn back to the upside there is little substantial resistance until the 70-dollar level.
Wednesday’s DOE report is pointing to a drop in crude stocks of 1.3 mb, while gasoline is expected to gain .6 mb and distillate are estimated higher by 1.6. Refinery utilization is expected to show a minor downtick to 95.7 percent.
Natural Gas
The trading week got underway with two sided trade, as the July ended in the middle of the day’s range at 2.254 for a gain of just over 1 cent. The positive settlement came in spite of production regaining the 102 bcf level over the weekend and continuing LNG maintenance. Forecasts were near unchanged coming out of the weekend, but with minor downward revisisons in CDD expectations. Trade seemed unwilling to test the downside, with the historically low price environment having little weather risk priced in. Look for the market to continue to trade uneventfully until more convincing heat begins to develop. The low at 2.136 remains the next support level, while the 2.38-2.41 range marks initial resistance, with a settlement through that area necessary to build any momentum for further gains.
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