Written Commentary
by Stephen Platt and Mike McElroy
Price Overview
After a steep selloff early in the week, the market regained its footing as the crude oil reestablished itself above the 100-dollar level. The active May contract ended today’s session at 103.09 for a gain of 1.44 on the day after being higher by over 8 dollars yesterday. The products also moved higher with the heating oil up over 8 cents and the gasoline better by 2 after gains of 32 and 23 cents respectively yesterday. Trade seemed to tire of the positive hints from peace talks that have thus far lead to no agreement, with predictions from the IEA Monthly Report and oversold technicals adding to the upside bias.
The IEA ignited concern with their estimates that 3 mb/d of Russian crude could be shut-in starting in April, with higher amounts possible if sanctions are ratcheted up further. Even with their estimates for demand to slow in the second quarter through year-end by as much as 1.3 mb/d, the shortfall is still well above any potential supply increases in sight as Saudi Arabia and the UAE appear to be unwilling to open the taps at the moment. The growing number of Omicron cases in China continues to offer resistance as potential lockdowns raise the risk of further demand destruction.
With volume and open interest in the petroleum complex contracting due to the extensive volatility and margin increases (crude open interest is down 13 percent since before the war started, products down 25-30 percent) price swings will be exaggerated from their already elevated levels. With settlements in the upper end of the days range, the 110 level basis May crude looks like the next upside target. The 100-dollar level has been reestablished as initial support, with the 94 area offering trendline support below there.
Natural Gas
After another solid move higher following the weekly storage report, the market to a breather today as volume was light and prices traded within yesterday’s range, settling 11 cents lower at 4.902 on the active May contract. The 79 bcf draw was above expectations near 74, as total stocks now stand at 1,440 bcf. Coupled with weather reports indicating cooling at the end of the month that could extend withdrawals, the May pushed above the 5 dollar level yesterday. Today’s morning revisions removed most of those demand expectations and brought out end-of-week selling interest. The 4.75 area should hold up to any downside pressure, while resistance at the 5 dollar level could be minor, with the early March highs near 5.20 the next target.
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