Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
After early session losses, the petroleum complex turned higher with crude gaining 1.05 to settle at 77.54 basis April. Reports of a strike by petroleum security guards in Libya lent support and touched off short covering. The cracks traded higher as tightening distillate supplies in Europe encouraged buying. The lack of fresh news on a Gaza cease fire also encouraged short covering along with attacks by Houthi rebels in the Red Sea.
Choppy trade in the petroleum complex persists, with the market pulled by the uncertain interest rate environment, Chinese demand given economic challenges, and adequate crude availability despite delays attributed to the Red Sea attacks. Stocks, which are expected to build in the first and second quarter, will remain restricted in the absence of any meaningful reduction in voluntary production cuts by OPEC at their meeting in March.
Doubts that the Gaza peace negotiations this weekend in Paris between the US, Egypt, Qatar, and Israel will progress quickly despite reports of an understanding on the basic contours for a hostage deal raised concern over an Israeli offensive on Rafah. The fluctuating risk premium continues to propel prices to a wide trading range of 74-80 on the possibility of some limited cease fire into Ramadan, which begins March 11th, and the prospect that Russia and Saudi Arabia will attempt to scale back their voluntary production cuts for shipments in April.
The DOE report on Wednesday is expected to show crude stocks increasing by 1.4 mb while distillate is forecast to fall 1.8 and gasoline stocks are seen declining by 1.2 mb. Refinery utilization is expected to rise by .2 to 80.8 percent.
Natural Gas
The week kicked off with a bounce in prices as the market recouped Friday’s losses early in the session. The momentum could not be maintained as the day wore on, and the April contract settled with a gain of 4.5 cents at 1.744. As mentioned last week, production is the focal point, and a drop to the 103 bcf/d area over the weekend piqued long interest and flushed out some short covering. The reality of the current warm weather forecasts and large storage overhang with winter coming to an end once again deterred a more substantial rally, aided by continued underperformance from LNG on the Freeport outage. Prices managed to settle back above the 9-day moving average for a near term positive signal. The 1.78 area offers initial resistance followed by 1.87. The 9-day near 1.72 now marks initial support, with Friday’s low at 1.683 needing to hold up in order to avoid a test of the lows at 1.60.
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