Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
After hitting a high of 80.95 basis April crude yesterday, prices collapsed and traded down to as low as 76.11. The weakness was linked to growing concerns over high interest rates following Chairman Powell’s Congressional testimony. His comment that interest rates will stay higher for longer raised fears that the US economy might fall into a recession. In the background was caution in advance of the DOE report and the prevailing level of crude inventories.
The DOE release failed to provide much incentive to the upside. Crude oil stocks declined by 1.7 mb compared to expectations for a .3 mb draw. Cushing stocks of crude fell to 39.8 mb, a decline of .9, which was welcomed. Gasoline stocks were off by 1.1 mb and distillate showed a small increase of .1. Total stocks of crude and products rose by 1.9 to 1,260.3 mb compared to 1,147.1 last year. Net imports of crude rose from .6 mb to 2.9 mb, while net export levels of crude and products fell to 1.0 mb from over 3 mb last week. Refinery utilization rose modestly to 86 percent.
Interest rate movements will be closely monitored for insights into economic activity, along with the direction of the dollar. Supportive factors include the recovery of the Chinese economy, which could help boost demand by over 500 tb/d in 2023, and the potential for global oil demand to grow by as much as 2.3 mb/d in 2023. Tightness in sustainable capacity remains in the background along with the potential for an inventory decline later this year. The move has taken values back to support in the 74-75 range, while resistance at the 81-82 area remains formidable.
Natural Gas
After minor upside action yesterday, the market weakened today, losing 13.6 cents to settle at 2.551 basis April. Increased demand expectations from forecast revisions supported values temporarily, but trade began losing faith in the predicted cooling following the trend of recent colder expectations fizzling out before coming to fruition. Freeport also put a damper on buying interest, as inconsistent flows that went from nearly 1.7 bcf Wednesday to well under 1.0 yesterday and today brought into question the smoothness of their return to full capacity. Tomorrow’s storage report is expected to show a draw near 80 bcf, well below the 5-year average decrease of 101. The 2.50 level held up over the last two sessions and remains a key area, as a settlement below there likely spurs a retest of the lows. Any recovery in prices from forecast shifts or a larger than expected draw tomorrow will find initial resistance at 2.70, with 3 dollars the target if that level is violated.
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