Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex traded under pressure, with March crude settling lower by 1.23 at 76.64. Selling developed ahead of the IEA Monthly Report due for release tomorrow, aided by a bearish DOE report that encouraged profit taking following recent strong gains in outright valuations and the cracks. Recent support had been linked to the favorable demand outlook in OPEC’s Monthly report released yesterday against a backdrop of heightened tension in Gaza following a breakdown of cease fire negotiations.
The DOE report indicated a larger than expected build in crude inventories of 12 mb, while gasoline and distillate stocks fell 3.7 and 1.9, respectively. Refinery utilization continued to decline, falling by 1.8 to 80.6 percent. In the Midwest, or Padd 2, refinery utilization fell to 83.1 percent from 95.1 in the prior week on the closure of the BP Whiting refinery in Indiana. Total stocks of crude and products rose 5.2 mb. Net exports of crude and products recovered to 2.6 mb. Total disappearance levels for all products fell to 19.3 mb from 20.2 in the prior week and have registered an increase of .7 percent for the year so far compared to 2023. Gasoline disappearance declined to 8.2 mb verses 8.8 last week while distillate disappearance declined to 3.5 mb against 3.8 in the prior week.
The market has exceeded our expectations on the upside, reaching a high of 78.77 basis March before retreating. Further upside will be contingent on tomorrow’s IEA report and whether demand forecasts are revised upward. The inflation report yesterday suggested interest rates will remain higher than previously expected, which will temper economic growth and likewise demand. However, ideas that the market is well balanced should limit movement above today’s highs and possibly lead values back below the 76.00 level as lower crude throughput due to seasonal maintenance improves availability.
Natural Gas
The market remained unable to garner any buying interest, dropping nearly 8 cents yesterday and slipping another 8 cents today to settle at 1.609. The fundamental picture remains negative as winter nears its end without any demand hope on the horizon. At some point production will need to be reduced or the free fall will continue. Although output has pulled back near 105 bcf the last couple of days, it is not enough of a sample size to discern a trend change. Tomorrow’s storage report is expected to show a draw of 69 bcf compared to the 5-year average for this time of year at 149. The 1.60 area held up to the settlement today, but if recent history is any indication this market is destined to shoot for the June 2020 low at 1.432. With RSI now near 14 percent a short covering rally could surface without much warning. The 9-day moving average at 1.885 remains the first level of decent resistance, with a settlement above it necessary to flush out more substantial short covering.
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