Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The April crude oil settled 78 cents higher at 80.46. Early selling was seen in response to the Chinese growth target being set at 5 percent, less than expectations near 6. Given that GDP growth in 2022 was only 3 percent, the 5 percent growth target looks realistic, and could lead to a recovery in oil demand of between .5 and .8 mb/d in 2023. Caution was also apparent in response to scheduled Congressional testimony by Fed Chairman Powell this week. The possibility that higher interest rates will lead to a recession in the US, and potentially globally, continues to be a major headwind for the market.
Although the Chinese target was more modest than expected, it could provide some semblance of stability to global inflationary prospects which in turn could temper interest rate increases. We expect petroleum disappearance rates in the US to improve on expanding exports and a seasonal pickup in gasoline demand, which has been reflected by the recent strength in the gasoline crack. The improvement in demand for both the US and China will likely lead to global oil balances moving into deficit in the latter half of the year, which should help underpin values into resistance near the 81.00-82.00 range on the prompt crude and potentially 101 in the intermediate term.
The DOE report on Wednesday should provide some insight into how quickly this progresses, with expectations pointing to a crude inventory draw of .3 mb, gasoline and distillate stocks drop of 1.9 mb and 1.3 respectively, while refinery utilization is expected off .1 to 85.7 percent. Disappearance rates and the level of net exports will be watched closely.
Natural Gas
Prices gapped lower overnight and continued to find selling interest throughout the session as the April contract closed with a loss of 43.7 cents at 2.572. Weather forecasts triggered the reversal in sentiment, as demand expectations lost 65-70 bcf in the 15-day outlooks compared to Friday. Even with Freeport taking in 1.7 bcf today and total LNG flows reaching above 14 bcf over the weekend, the severity of the forecast revisions was too much to overcome. Prices tested down near 2.50, and that level now marks key support, with a settlement below that area opening the potential for a retest of the lows near 2.10. Despite the large forecast shift, temperatures are still expected to be below normal into the middle of March. A swing back up in demand expectations could quickly retest the 2.70 level with the next resistance after that coming in again at 3 dollars.
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