Energy Brief for Mar 10.23
by market analysts Stephen Platt and Mike McElroy
Turmoil in interest rate markets on the potential failure of Silicon Valley Bank and suggestions that the Fed will moderate their interest rate policy helped underpin the petroleum complex following early weakness that had carried values down to a low of 74.77 basis April crude. Reports that Iran and Saudi Arabia agreed to reestablish relations after seven years of hostility also offered support. These efforts between Tehran and Riyadh might lead to a pulling back in geopolitical tension in the region, and signal a more cooperative stance between the two countries on oil policy, particularly given the rising influence of Russia and China in the region and the strained relations with the US. In addition, the liquidity problems at SBV might offer a reason for the Fed to soften their interest rate rhetoric despite what looks to be a relatively strong economy.
The petroleum complex is likely to trade cautiously early next week. The uncertain interest rate environment and direction of Fed policy will continue to be watched closely ahead of the CPI report due for release on Tuesday. Monthly reports from OPEC and the IEA will also be available Tuesday and Wednesday respectively, providing input on the strength of the Chinese recovery and Russian availability. Potential for a supply/demand deficit developing in the second half of 2023 will remain a key consideration. Support at the 74-75 area basis prompt crude has held, and potential to test resistance in the 81-82 range seems possible in response to today’s weaker interest rates and growing uncertainty over Fed policy.
The market ended the week on a negative tone, closing lower for the third day in a row. The April contract settled at 2.43 for a loss of 11.3 cents. Yesterday’s storage report came in above estimates, showing a stock draw 84 bcf, but it was unable to spur any buying interest as total stocks are now more than 20 percent above the 5-year average. News late Wednesday that Freeport had received final approvals to return to full operations could not garner much interest either, as current flows continue to be inconsistent, staying below 1 bcf all week after their rapid ascent to 1.7 bcf last weekend. Weather remains the key headwind, as below normal temperatures expected in the 15-day forecasts don’t portend a significant improvement in the supply overhang. The settlement below 2.50 and poor close should lead to follow-through next week. The 2.40 area could offer minor support, but the obvious target now becomes last months’ lows near 2.11. Initial resistance on a turn higher should surface near 2.60.
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