Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex traded on the defensive, settling 70 cents lower in crude, 1 ½ cents lower in gasoline, but steady in ULSD. Uncertainty over the timing of crude purchases for the US Strategic Petroleum Reserve along with renewed concern over the banking system, which focused on Europe, lead to early selling. Additional weakness was traced to comments from Russian Deputy Prime Minister Novak indicating that the production cut of 500 tb/d would be from the January output level of 10.2, which implied a smaller output cut than previously indicated. Secretary Granholm suggestion that SPR purchases would not take place quickly and maybe not even this year, and created uncertainty over how much support potential purchases would provide. The oversold nature of the market earlier this week and decreased banking concerns in the US helped prices recover from early lows of 66.82 basis May.
Granholm’s comments suggesting SPR purchases will not occur quickly is a disappointment for the market given that it was expected to be a source of price support. In addition, the possibility that previously announced sales of 25 mb from the SPR of 25 mb might still proceed despite the increases noted in commercial stocks also poses an impediment to values. Offsetting these risks is the potential for a strong recovery in Chinese demand along with what we expect will be strong travel trends in the US during the summer if a recession can be avoided. On the supply side, OPEC+ policy deliberations, especially during a full Ministerial Meeting scheduled for June, will be watched as we move into the second half of the year when the prospect for a deficit situation is expected to come into a clearer view. The OPEC Joint Ministerial Meeting scheduled for April 3rd is not expected to result in a change to production policy. Subsequently prices could have a choppy bias with support likely near 65.00 and resistance in the 73-74 area.
Natural Gas
The market flirted with the lows over the last two sessions but has managed to hold the line near 2.25. Prices found support today on forecasts increasing demand expectations over the next 15 days by as much as 10 bcf. The May contract ended with a gain of 7.8 cents at 2.361 in quiet trade. A string of 5 days with Freeport nominations above 1 bcf and reaching as high as 1.5 has rekindled hope that they will soon trend toward capacity in the 2.1 bcf/d area. Yesterday’s storage report came in at a 72 bcf draw, slightly below estimates near 75 but above the 5-year avearge of 45. Reaction was muted after the release. The higher close today did little to change the overall negative tone of the market. The 9-day moving average, which is currently at 2.453, remains initial resistance, with a settlement through that level necessary to kindle any hope of upside follow-through. The 2.25 area will need to hold support to avoid a test down toward 2 dollars.
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