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Energy Brief for Feb 1.23

by market analysts Stephen Platt and Mike McElroy

Price Overview

Early strength that saw prices push toward the 100-day moving average at 79.99 could not be maintained as the market fell back through yesterday’s lows to settle with a loss of 2.46 at 76.41 basis March. The weakness was linked to the DOE release, which showed crude and product availability in the US improving. In addition, reports that OPEC would maintain their production targets along with some caution by speculative interests ahead of the Fed announcement weighed on sentiment.

The DOE report showed commercial crude inventories rose 4.1 mb compared to expectations for a 1 mb decline. More important, Cushing inventories increased by 2.3 to 38 mb. Gasoline rose 2.6 mb while distillate increased by 2.3 against expectations for an increase in gasoline of 1 mb and a decline in distillate of 2.3. Crude and product inventories rose by 1.6 mb, as stocks of propane and other oils declined.  The build in crude inventories was attributed to a surge in net import levels to 3.8 mb from 1.9 in the prior week. Refinery utilization was off .4 at 85.7 percent due to sharp declines in operating rates on  the West Coast and to a lesser extent along the Gulf Coast. Disappearance levels of all products were sluggish at 20.1 compared to 21.4 mb with gasoline rising modestly, but distillate showing a decline to 3.7 mb.

Recent price action has tested our anticipated support in the 75-77 range. The 25 basis point rate hike in the US, and potential increases in the EU and Britain will likely keep fear of a modest economic recession in the background. The price cap on products beginning February 5th and EU ban on Russian oil imports will likely raise uncertainty, despite the appearance that Russian crude export levels have been maintained.  Further declines toward the 75.00 level basis March look possible, but values much lower than that will begin to attract support on the potential for a Chinese economic recovery along with possible SPR purchases.

DTN Crude oil chart 2.1.23
DTN Nat Gas 2.1.23 chart

Natural Gas

New lows were reached today as the March traded down to 2.463 intraday before ending the  session at 2.468 for a loss of over 20 cents. The lack of any substantial cold weather into the middle of the month continues to pressure prices, as overnight models warmed again with time running out on winter demand season. Current cold temperatures have lead to freeze-offs that have brought production down to the 94 bcf/d range, which mustered buying interest early in the session, but could not trigger follow-through as the slowdown is likely short lived with warmer temperatures arriving into the weekend. Tomorrow’s storage report will likely keep a damper on prices as the expected 142 bcf withdrawl is well below the 5-year average of 181. With the 2.50 level taken out and the poor close today, 2 dollars looks like the next downside target. With the RSI dipping below 20 percent, the risk of a bounce getting carried away has grown, with minor resistance near 2.86 and 3.13, and the 4 dollar level easily reached if shorts begin to panic.


The authors of this piece do not currently maintain positions in the commodities mentioned within this report.

Charts Courtesy of DTN Prophet X, EIA, Reuters


Learn more about Stephen Platt here

Learn more about Mike McElroy here

Futures and options trading involve significant risk of loss and may not be suitable for everyone.  Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.  The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM.  The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.

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