Written Commentary
by Stephen Platt and Mike McElroy
Price Overview
Prices traded sharply lower coming out of the weekend as crude ended the day with losses of over 6 dollars at 103.01 while the product markets were lower by more than 14 cents. Selling was ignited by reports that both Russian and Ukrainian negotiators had hinted at progress in talks toward a cease fire. Despite the unlikelihood of any major breakthroughs as intense fighting continued in the region, trade nonetheless responded with concerted selling as volume and open interest continue to pull back in the face of extreme volatility and increased margins. Reports that China was seeing a jump in the number of COVID infections added background weakness as concerns resurfaced over demand destruction in the event of another flare up of the pandemic.
Despite trading below the 100-dollar level briefly today, tensions remain high as the war continues to intensify despite hints of progress in negotiations. Questions will arise regarding where the world goes with Russia even after a potential end of aggressions. The complicated politics involved do not suggest a quick resolution is at hand. The 100-dollar level now looks like solid support on a closing basis, with the upside cleared out for a return to the 118-120 area if conditions deteriorate further. Inventory levels are the key underlying factor that will need to be watched regardless of the direction of the war in Ukraine as world supply was a concern even prior to the conflict.
Natural Gas
With temperatures rising in the near term, the market was unable to continue the rally seen late last week as the April contract ended the day nearly 7 cents lower at 4.658. Weakness to overseas prices also offered resistance as Russian flows into Europe remained at normal levels over the weekend and some hints at progress toward a cease fire were indicated. The weakness came in spite of slowing output over the weekend that was the product of cold temperatures that lead to freeze-offs in some production areas. LNG flows also registered a new record high on Saturday just over 13.4 bcf/d but were unable to generate substantial buying interest. The 4.60 level was taken out overnight, and today’s lows near 4.50 now look like solid support. The 4.82 level should offer upside risistance as it marks a 50 percent retracement of last weeks break.
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