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Energy Brief for Mar 22.23

by market analysts Stephen Platt and Mike McElroy

Price Overview

The market traded cautiously in advance of the Fed interest rate decision this afternoon. The increase of 25 basis points was not a surprise but provided modest support. Other considerations that the petroleum complex focused on prior to the announcement included the DOE report, how quickly Chinese demand recovers, the impact on demand in France from the strike action by refinery workers, the availability of Russian cargoes in Asia, and the potential for travel and entertainment in the US to be supportive into the summer.

The DOE report showed crude inventories increasing by 1.1 mb compared to expectations for a decline of 1.4. Cushing stocks fell by 1.1 mb. Net imports of crude remained low at 1.24 mb/d as crude exports at 4.9 mb remained strong. In products, large stock drawdowns helped firm the cracks, with the gas crack rising over 1.30 to 34.60 basis June while the 2-oil crack rose over 50 cents per barrel. Stock levels fell 6.4 mb and 3.4 mb for gasoline and distillate respectively, with total stocks of crude and products declining by 10.4 mb. Disappearance levels showed a recovery to 20.3 mb from 19.1 in the prior week. Refinery utilization continues to trend higher rising to 88.6 percent from 85.2 last week. 

The petroleum market established a low last week and should move higher with choppy trade. While banking concerns and recessionary risks remain in the background, the potential for expansion in Chinese growth, inventories tightening later this year, and the chance of purchases for the SPR should underpin values on any further weakness. Upside movement will be erratic as good prompt availability of crude, particularly in Asia, limits upside potential to the 74-75 area for now. The OPEC Joint Ministerial Meeting scheduled for April 3rd is not expected to result in a change to OPEC+ production policy. 

DTN WTI Crude chart 3.22.23
DTN May Nat Gas chart 3.22.23

Natural Gas

The market has seen back-and-forth action over the last two sessions as weather reports have swung demand expectations in both directions. Overall colder than normal temperatures are forecast into early April, but the severity has not been enough to ignite a substantial bounce in prices. Yesterday’s late strength had bulls thinking a double bottom had been achieved, but today’s 17.8 cent loss and settlement at 2.307 points to a market that wants to probe lower. Rumors that Freeport is experiencing issues and may be cancelling some cargos added to the negative tone into the close. Tomorrow’s storage draw is estimated at 75 bcf compared to the 5-year average draw of 45. A larger than expected decrease could help the market distance itself from the lows, but will likely need colder forecasts to materialize as well. The 2.25 level is initial support, with a settlement below there leading to a test of 2 dollars. The 9-day moving average currently near 2.52 is a key inflection point, and the market will need to settle above there convincingly to signal any chance of upside follow-through.

The authors of this piece do not currently maintain positions in the commodities mentioned within this report.

Charts Courtesy of DTN Prophet X, EIA, Reuters


Learn more about Stephen Platt here

Learn more about Mike McElroy here

Futures and options trading involve significant risk of loss and may not be suitable for everyone.  Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.  The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM.  The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.

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