Explore Special Offers & White Papers from AFS

Energy Brief for Feb 6.23

by market analysts Stephen Platt and Mike McElroy

Price Overview

The petroleum complex traded on both sides of unchanged, with an early rally attempt carrying values to a high of 74.41 basis March crude. The buying was linked to concerns over an earthquake in Turkey disrupting pipeline flows to key ports, along with a shutdown at a key oilfield in Norway due to a power outage. Prices retreated at mid-morning, trading to a low of 72.25 before recovering. The weakness was linked to good Russian availability, adequate US stocks, continuing fears over demand due to higher interest rates following last week’s strong jobs data, and strength to the dollar raising concerns about overseas demand.

The market closed with modest gains, reflecting caution that the downside momentum apparent since the end of January might have run its course. The lows today at 72.25 almost reached the early December bottom at 70.56, when COVID restrictions in China were still in force and inhibiting demand. With those restrictions lifted, demand potential has improved dramatically, with the IEA tracing half the growth in global demand for 2023 to China. In addition, other major consumers such as India and the US have shown stronger than anticipated growth rates, which should benefit demand provided higher interest rates do not derail a recovery.  The move by Saudi Arabia to raise OSP’s might be reflective of the better demand environment. With margins for both gasoline and ULSD moving lower, the price attractiveness of products has improved more than crude, which should help ease inflationary expectations in the near term and in turn encourage higher demand as we move toward the second half of the year. The potential for SPR purchases remains in the background, but if the debt limit is not raised quickly, those actions could be disrupted. A choppy tone should persist, reflecting the uncertain economic environment with near term resistance toward the 77-78 level basis March.

The DOE report on Wednesday is expected to show a 2.2 mb increase in crude inventories, while gasoline stocks are forecast to build by 1.4 mb and distillate are expected lower by .5. Runs are estimated to be up .2 to 85.9 percent.

DTN Crude Oil chart 2.6.23
DTN Nat Gas chart 2.6.23

Natural Gas

The market traded quietly today with an inside day on the chart and tight ranges. The March contract settled with a gain of 4.7 cents at 2.457. Weather forecasts coming out of the weekend saw little change, while production began to recover from freeze-offs seen late last week, with output exceeding 96 bcf/d over the weekend. LNG flows remain robust at just under 13 bcf/d, as the return of Freeport is imminent but there remains questions regarding how quickly they can ramp up to full operations. Despite the minor recovery today the market remains patently bearish as we creep out of winter without any major weather risks currently in view. Further weakness will find minor support near 2.30, with 2 dollars the target beyond there. A recovery will not find substantial resistance until the 2.65-2.70 area, and beyond there near 3 dollars.

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.

Latest News & Market Commentary

Explore Special Offers & White Papers from Archer Financial Services

Get Started

Contact Stephen Platt Today