Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex attracted active profit taking following strong gains over the past two days that saw April crude test a high of 83.85 before backing off today. The May contract settled with a loss of 1.46 at 81.27. Weakness was linked to the firmer dollar and caution in advance of the interest rate decision today by the US Federal Reserve, who announced no change in rates.
The market remained cautious on the downside as it assessed the impact of recent drone attacks by Ukraine on Russian refining facilities. The damage is expected to cut Russian gasoline production between 7 and 10 percent. A key question is whether Russia will need to cut crude production as indicated earlier this month following the OPEC meeting or if they will continue to supply crude to make up for the lower levels of gasoline and naphtha exports that are expected. Inventories of oil afloat are large and continue to be a headwind to values. Consolidation in the 76-84 range is likely as the higher prices discourage demand from China and India following strong purchases in February. In addition, signs that US interest rates will be higher for longer remains in the background limiting support due to the uncertain economic outlook.
The DOE report had limited impact on values. Commercial crude inventories declined by 2.0 mb. Gasoline inventories fell 3.3 mb while distillate inventories rose .6. Total stocks of crude and products fell 6.1 mb. Refinery utilization improved to 88.7 percent. Disappearance levels for crude and products fell to 19.7 mb compared to 20.8 last week. Exports of crude and products rose sharply to 4.1 mb as exports of products surged.
Natural Gas
Current forecasts for colder than normal temperatures pushed prices higher yesterday, with the May gaining over 4 cents and remaining supported in overnight trade. The market ultimately gave back most of those gains, settling 3.1 cents lower today at 1.845. Reports that Freeport would have two trains down for maintenance after hope had built last week that they would be back online in the near future put a damper on buying interest. Estimates for tomorrow’s storage report also reminded trade of the ample storage situation. Expectations are for a 4 bcf injection verses the 5-year average drawdown of 42. Price gains have proven to be temporary in the markets current fundamental condition. There is no substantial support between current levels and the contract low at 1.74. Resistance comes in near 1.90, with the settlement ove the last two sessions above the 9-day moving average the only near term positive for the market.
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