Energy Brief for Feb 6.23
by market analysts Stephen Platt and Mike McElroy
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.
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.
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