Written Commentary
by Stephen Platt and Mike McElroy
Price Overview
Global concerns over energy supply due to the war in Ukraine continued to drive the market higher, as the crude oil peaked at 115.40 today before settling 5 1/2 dollars higher at 114.93. The heating oil lead the complex, gaining 22 cents as a larger than expected drop in distillate stocks in the DOE report and heightened worries overseas as Russia is reportedly slowing its output of diesel, which Europe depends on for a large percentage of their supply. The closing of Kazakhstan’s CPC pipeline yesterday due to storm damage added upside momentum. The terminal moves as much as 1.2 mb/d of crude oil a day, and there is no indication at this time of when it will be back online.
The DOE report added fuel to the rally, as crude oil stocks were drawn down by 2.5 mb, well above expectations for a small build, with SPR stocks also decreasing by 4.2 mb. Distillate stocks were lower by 2.1 mb verses an estimated pull of 1.4, while gasoline also exceeded guesses, coming in lower by 2.9 mb/d compared to estimates at 2.0. Production remained stubborn, maintaining the 11.6 mb/d level for the 7th straight week. Utilization jumped .7 to 91.1 percent.
With President Biden heading to Europe as the war in Ukraine rages on, the question of increased sanctions against Russia and whether they are willing to bring energy into the equation will be key to further price increases. With settlement through the 113.40 resistance area, the next upside target is at 120. Initial support now looks to be in the 110-111 area.
Natural Gas
The market raced through the 5 dollar level yesterday, gaining 29 cents to settle above the previous contract high near 5.20, and then tacked on another 5 cents today to settle at 5.274. Cooler weather revisions, steady production and maxed out exports garnered the headlines, but the extent of the move was not fully justified by those inputs. Technical factors played a part, as the 5.10 area appeared to trigger a substantial amount of stop loss buying early in yesterday’s session, leading to a quick run to 5.22. The storage report tomorrow is estimated to show a 56 bcf decrease compared to the 5 year average draw of 62. With the speed of the move higher, a retrenchment could come fast and furious with the 5 dollar level the first support. The next resistance would come in at the psychological 5.50 level.
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