Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex traded mixed, with crude ending higher by 87 cents at 77.91 basis April, gasoline up 2.22 while ULSD attracted good selling interest to settle lower by 1.68 cents at 266.19. The support to crude and gasoline was linked to a number of factors including drone attacks in the Red Sea, a Chinese cut in mortgage loan rates and uncertainty linked to the expected announcement on Friday by the US of additional Russian sanctions that could tighten supplies by imposing penalties on shippers that have recently avoided sanctions. Limiting the upside were potential for additional increases in crude stocks in tomorrow’s DOE report along with the appearance US interest rates will remain higher than previous expectations into the summer, helping restrain US economic activity and providing support to the dollar. The potential supply tightening following the sanction announcement supported the backwardation, particularly if China and India seek to rebuild stocks.
The rebuilding of crude inventories in the US along with moderate weather conditions should help limit additional movement beyond the 80.00 level basis April crude. The delayed DOE report is expected to show crude stocks building by 4.3 mb while distillate and gasoline are expected to show a 1.8 and 3.0 mb decline respectively. Refinery utilization is expected to increase by 1.1 to 81.7 percent. The rebuilding of stocks should help limit upside movement given the uncertain interest rate environment. In addition, the approach of the OPEC meeting in early March in which an unwinding of voluntary production cuts is likely to be discussed for April shipment should offer resistance and limit buying at the higher levels. Subsequently, we still see values confined to a range of 74-80, particularly if a Chinese economic recovery remains uncertain.
Natural Gas
The market continued to struggle coming out of the weekend, but finally flushed out short covering late yesterday after settlements had been established. Strength followed through today as the April contract closed with a gain of 21.7 cents at 1.863. The buying was triggered by announced production cuts from Chesapeake Energy of approximately .75 bcf/d for 2024. Although not extensive on its own, trade is anticipating forthcoming announcements of decreases from additional producers. A weekend drop in production under 105 bcf added to the positive swing. The price spike took values well through the 9-day moving average as well as downtrend resistance that both came in near 1.76. If additional output curbs are announced in the next few days, prices could gravitate toward the 2 dollar area, with 2.024 marking a 38 percent retracement of the break since early January. A push above there would be difficult with current demand trends and restrained LNG export levels. A reversal of current euphoria could see a quick retrenchment, with the 1.76 area initial support before a retest of the lows at 1.60. Tomorrow’s storage report is estimated to show a 64 bcf withdrawl from stocks compared to the 5-year average decrease of 168.
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.
