Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex attracted buying interest following last week’s weaker tone as the prospect for Chinese stimulus helped diffuse demand concerns. In the background was the continued halt to pipeline flows of crude oil to Ceyhan, Turkey following the Presidential election that is now scheduled for a run-off later this month. Reports that G-7 members are considering additional sanctions against Russia to further restrict exports also provided background support along with the possibility for purchases by the US SPR in the last quarter.
Market participants will be closely watching the International Energy Agency monthly report scheduled for release tomorrow. Commercial crude inventories will be key given that they are close to their long-term seasonal average following massive releases from the US Strategic Petroleum Reserve of 195 million barrels over the past 12 months. Of particular interest will be the outlook for Chinese demand and Russian availability. The potential for an inventory deficit in the second half of 2023 will also be a key consideration.
For now, economic concerns will be a headwind to prices, but the likelihood of gasoline disappearance recovering into the summer along with Chinese stimulus should help underpin a tighter stock situation, which will only be magnified if purchases to rebuild the SPR come closer to reality later this year. Downside potential appears limited as we look for a retest of the 74.00 area near term, and potentially the 100-day moving average near 76.50 as concern over raising the debt limit passes in the US.
The DOE report on Wednesday is expected to show crude inventories off 1.3 mb, distillate up .2 and gasoline off 1 mb, Refinery utilization is estimated to have increased by .5 to 91.5 percent.
Natural Gas
Momentum from Friday’s rally was able to follow-through to start the week, as the June contract added 10.9 cents to settle at 2.375. The large drop in rig count continued to roil the market although the effects on production are likely many months away. Talk that LNG maintenance will be wrapping up soon also offered support, although flows were steady near 13 bcf/d to start the week. Weather demand remains tepid and has yet to hint at any warmup into the end of the month. This will limit the upside until we begin to see warming into June, if it materializes. The settlement above the 20-day moving average, which was near 2.31 today, increases potential for a test of the 2.50-2.55 range, but the market likely has difficulty pressing much beyond that area near term. Initial support moves up to the 2.21 area and below there at 2.14.
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