Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex traded in a cautious fashion, with crude values attracting scattered selling in advance of tomorrow’s CPI numbers and on reports that a ship had begun loading at the Port of Ceyhan in Turkey. Buying developed late in the session on continued concerns that a cut in Russian production and sanctions on their products will balance out supplies. Fear of an uptick in inflation kept buyers reserved given the potential impact a higher-than-expected CPI could have on sentiment.
Despite the Russian moves to cut production, we remain unconvinced that it will significantly limit supply availability near term as we approach the highs reached in January near 82.60 basis March. Key to the outlook will be China’s economic growth in 2023 and Fed policy in reaction to the CPI report tomorrow. While we believe a global supply/demand deficit will develop in the second half of the year, the improved inventory situation in the US and Europe should pose resistance near term. Insights will be provided by the OPEC Monthly Report to be released tomorrow and the IEA Monthly Outlook on Wednesday.
The DOE report Wednesday will also show whether demand is showing signs of recovery. It is expected to show crude higher by 300 tb, distillates up by 400 tb, and gasoline increasing 2.0 mb. Refinery utilization is expected lower by .1 to 87.8 percent.
Natural Gas
The market tried to follow-through on the strength seen late last week, but the overnight rally failed above 2.60. Prices worked lower throughout the rest of the day as the March ended 10.9 cents lower at 2.405. The early move was supported by Freeport LNG’s gradual return, as their volumes have picked up steadily, with today’s early nominations showing the plant taking in nearly .5 bcf. Upside momentum could not be maintained this morning as weather forecasts continued to be lackluster, with no significant cold in sight. Production held above 98 bcf/d over the weekend and added negative fodder. The failure above 2.60 keeps that area as solid resistance, with a settlement through 2.65 necessary to garner any upside hopes. The poor close has made the lows near 2.35 an easy near term target, and a push through there could lead to a test of 2 dollars.
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