Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex continued to drift, with values maintaining the 76-80 range, settling at 77.93 basis April crude for a small loss. In products, the cracks were steady to higher with gasoline settling up 5.33 at 2.5805 while ULSD gained 1.09 at 2.6518. Reports of increased attacks on shipping in the Red Sea by Houthi rebels and the breakdown of ceasefire talks into Ramadan failed to spark buying interest due to the lack of damage and the limited impact the attacks have had on vessels carrying crude thus far. Instead, the market is focused on demand considerations as doubts over the Chinese economy undermine the changes of a more favorable demand forecasts being achieved.
Key to sentiment will be the release of the Monthly report by OPEC tomorrow and the IEA on Thursday, March 12th. The two organizations are the furthest apart in their forecasts in over 16 years with the IEA last month forecasting demand will rise by 1.22 mb/d in 2024 and OPEC expecting an increase of 2.25 mb/d, a difference of 1 percent of global production. Key to the outlook will be the pace of the energy transition, and whether growth trends seen before the pandemic reestablish themselves in the years ahead.
Increasing US production to record levels remains a formidable force on OPEC output curbs, as their market share continues to be displaced. With the supply/demand situation in balance, stepped up sanctions on Russian shipping options and hostilities in the Middle East are limiting downside pressures. In addition, the Chinese economy is offering mixed signals. Subsequently, we expect the trading range of 76-80 to remain intact with inventory levels being watched closely.
The DOE report on Wednesday is expected to show crude inventories rising by .9 mb, distillate up .4 and gasoline falling by 2.1 mb. Refinery utilization is expected at 86.3 percent, which would be a gain of 1.4 from the prior week.
Natural Gas
Weakness seen at the end of last week followed through today as the April contract ended with a 4.6 cent loss at 1.759. Minor support was seen overnight due to cooling in the revised forecasts, with as much as a 25 bcf increase in demand in the 15-day outlooks. The higher trade was short lived as the market spent the rest of the session in negative territory. After pulling back to near 99.5 bcf/d, production bounced to the 101 area over the weekend, at least temporarily taking away the main upside driver to prices. Freeport LNG volumes remained low, with no guidance from the company on a timeline for return to capacity, further dampening the mood. With hopes for a winter demand event fading, trade will begin to turn attention toward summer temperature expectations. Support near 1.75 held up to a test today, but looks likely to be violated near term with the 1.69 to 1.71 range the next target. A turn higher will find initial resistance at the 9-day moving average near 1.86 and beyond there at 1.92.
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