Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex traded higher, with the gasoline and 2-oil crack firm and April WTI settling with a gain of 2.16 at 79.72. The strength was linked to new attacks by Ukrainian drones on Russian targets, optimism generated by the OPEC Monthly report released yesterday suggesting growth in demand will total 2.2 mb/d in 2024, and a larger than expected decline in gasoline inventories. The drone attacks over the past two days had the most impact, as reports of damage to a Lukoil and Rosneft refinery created uncertainty over the availability of refined product despite a Russian export ban on gasoline currently in force.
The DOE report failed to confirm the sharp decline in inventories of 5.5 mb reported by the API yesterday. Instead, it showed inventories declining by 1.5 mb against an expected build of .9 mb. Support was garnered from the sharp decline in gasoline inventories of 5.7 mb against expectations for a decline of 2.1 mb. Distillate stocks built surprisingly by .9 mb. Total stocks of crude and products fell 4.7 mb. Refinery utilization continues to increase as they come out of maintenance ahead of peak summer gasoline demand. Total disappearance remains impressive reaching 20.8 mb/d with gasoline disappearance at 9.0. Total net exports of crude and products were 1.7 mb/d.
Resistance remains formidable near the 80.60 area basis April crude. A penetration of this level would lead to a test of 82.00. The drone attacks in Russia might allow for better availability of Russian crude as domestic demand for gasoline is throttled back on lower throughput due to refinery damage. Key to the outlook will be the Monthly IEA Report slated for release tomorrow. In their monthly report, OPEC maintained demand growth at 2.25 against the IEA February forecast of 1.22. Expanding production in non-OPEC members such as the US, Guyana and Brazil and a normalization of production in OPEC areas such as Nigeria, Libya and Iraq are a formidable counter to current output curbs by OPEC+ as market share is displaced. Subsequently, we expect the trading range of 76-80 to remain intact with global inventory levels being watched closely.
Natural Gas
The market closed lower for the fifth straight session as the late February rally has nearly been erased. Yesterday saw strength early in the session after CNX Resources announced production cuts, but the momentum could not be maintained. The overwhelming weight of a warm winter in both the US and Europe has swollen storage levels and reigned in rally attempts. LNG flows have also hampered the market, with Freeport currently having two trains down with little word on restart timing. The sheen of output cuts has quickly worn off as lower 48 production has settled in near 100 bcf/d, which is not enough to squeeze out additional upside as the April contract moves toward expiration. Today’s late weakness signals a likely test of the low at 1.60, and failing there the March contract low at 1.511 would be the next target. A recovery would not find much resistance until the 1.80 area.
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