Energy Brief for Apr 9

Price Overview

The petroleum complex traded in a relatively quiet fashion and registered modest losses.  Although the potential remains for demand to recover as OPEC maintains control over production in the second half of the year, ongoing talks with the Iranians over the possible revival of the nuclear agreement with the US remains a concern given the potential addition to supplies. Reports from the Chinese and Russian envoys suggested some progress had been made in efforts to bring Iran and the US back into compliance.  Whether an agreement can be worked out will be watched closely over the next few weeks.  The progress of demand recovery will also be in the forefront. Given the additional production by OPEC the potential for a continued drawdown of overhanging stocks is in question.  Any sign that the recovery is threatened by either additional lockdowns or setbacks to vaccination programs might undercut values.

Next week the market will await the OPEC Monthly Report on April 13^th and the IEA Monthly Report on April 14^th for supply/demand indications, along with gauging the progress of the Iran-US nuclear negotiations.  The DOE report will also be assessed, particularly for products and the level of refinery utilization.  Gasoline disappearance is being closely monitored as well since this area is expected to be the leader for demand revival.  Reports of slowing in the Chinese economy due to tighter credit will also be a key consideration.

We continue to see good resistance near the 60.00 level basis May and beyond that near 61.50.  Any sign of a breakthrough in the Iranian nuclear talks has the potential to pressure values below the 57.30 area toward the 52.00-53.00 range as the recent move by OPEC+ to raise output likely maintains stocks at relatively high levels.

Natural Gas

Prices have managed to creep higher over the last two sessions with fundamentals mostly unchanged.  Yesterday’s storage report indicated a 20 bcf injection, which was slightly below expectations. The build puts total stocks at 1,784 bcf which is just below the 5 year average.  The next couple of weeks are likely to push stocks back above normal, with early estimates for next week at a 64 bcf build verses the 5 year at 26.  Underlying support was offered by a slowing in production, as a steady decline over the last week has lead to a nearly 2 bcf/d decline, along with increased pipeline exports to Mexico that reached a record today at 6.6 bcf/d.  Offsetting these improvements was a dip in LNG loadings as maintenance at Corpus Christi dropped flows by over 1.5 bcf/d at midweek.  The May contract will likely have difficulty mounting any substantial recovery into its expiration on April 28^th as temperatures continue to lack any demand boost from the heating or cooling side.  Near term the market is unlikely to exit the 20 cent range it has been in since mid-March.  The 2.60 area will offer resistance to any upside continuation, with the recent lows near 2.45 a possible longer term bottom.

Charts Courtesy of DTN Prophet X, EIA, Reuters