Energy Brief for Mar 1.23
by market analysts Stephen Platt and Mike McElroy
The petroleum complex continued to trade mixed, as early support developed on signs the Chinese economy is recovering following the release of their Purchasing Managers Index (PMI). The index rose to 52.6 in February, the highest level since April of 2012. The reaction to the news was muted by caution in advance of the DOE report after the API report showed a large 6.1 mb increase in crude inventories yesterday. The DOE report showed a stock increase of only 1.2 mb, and total stocks of crude and products falling by 3.0 mb. Although the report brought out some buying, it failed to be sustained as caution developed in response to reports that OPEC members increased their production by 150 tb/d in February. Nigeria showed the largest increase of 100 tb/d. Nevertheless, OPEC+ is still producing as much as 875 tb/d below target.
The DOE report indicated crude inventories built by 1.2 mb, putting commercial inventories at 480.2 mb compared to 413.4 mb last year. Stocks at Cushing rose .3 mb to 40.7. Gasoline stocks declined by .9 mb while distillate built by .2. Refinery utilization was stable at 85.8 percent. Net export levels of crude and products continued to rise, reaching 3.1 mb against 2.2 last week. Disappearance surprisingly showed improvement reaching 20.4 mb despite adverse weather conditions impeding travel last week.
The DOE report was encouraging, bolstering ideas that support in the $74-$75 range will continue to hold, aided by Chinese news suggesting their recovery is progressing. Although the move higher in interest rates remains a source of concern economically and on possible strength to the dollar, the direction of the US economy that it reflects could be a harbinger of more constructive demand prospects overall. Today’s statistics should help support ideas that we will be moving into a deficit position later this year, and provide the basis for values to advance into resistance near the 81.00 level on the prompt WTI crude.
The market continued to have an upside bias, with the April contract tacking on 6.4 cents today to settle at 2.811. The recovery is being supported by two main factors, the steady return of Freeport export capacity and the maintenance of below normal temperature expectations into the middle of March. After two months of poor demand, the potential swing to some semblance of normalization has helped to flush out profit taking and ease trade concerns over taking a long stance. In the background were cooler temperatures in Europe, where a similar mild winter had helped storage levels there reach ample levels as well. The push through 2.80 now puts the next upside target at 3 dollars. Any extension beyond there would need the cooler forecasts to materialize, and would target the 3.36 level, which marks a 38 percent retracement of the break since mid-December. A retrenchment should find initial support in the 2.53-2.50 area.
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