Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex traded lower on profit taking, with WTI settling with a loss of 1.70 at 78.74 basis April following the OPEC+ decision on Sunday to extend voluntary production cuts of 2.2 mb/d into the second quarter. Saudi Arabia indicated it would extend its commitment of 1 mb/d through the end of June. Russia indicated it will cut its oil production and exports by an additional 471 tb/d in the second quarter. This move was a surprise, and reflected recent unexpected outages at refineries due to drone strikes and maintenance shutdowns that have cut gasoline output by over 400 tb/d. How much the production cuts actually reduce availability from Russia is open for debate given afloat storage and overproduction reported recently. Other producers extending their cuts include Iraq at 220 tb/d, UAE at 163 and Kuwait at 135 tb/d. The total OPEC+ pledged cuts since 2022 stand at approximately 5.86 mb/d.
The failure to respond to the cuts was surprising given the fact that they extended through the second quarter and not just April. The overextension of the market, increasing output from non-OPEC producers, a sluggish Chinese economy, and uncertainty over interest rates are all issues continuing to limit upside progress above the 80-dollar level. Given the consumption forecast, even with the extension of production cuts the market is fairly balanced, suggesting trade in the 74-80 cent range basis prompt crude is still likely, particularly if US crude inventories continue to build. Ceasefire talks continue but Hamas and Israel remain far apart on terms.
The DOE report on Wednesday is expected to show crude inventories building by 2.6 mb, with distillate stocks off 1.0 and gasoline lover by 1.6. Refinery utilization is estimated to have risen 1.4 to 81.5 percent.
Natural Gas
After minor back and fill action at the end of last week the market returned to the upside, gaining 8.1 cents today to settle at 1.916 basis April. A further slowing in output over the weekend to under 101 bcf/d lead to a gap open higher overnight. An announcement early this morning by EQT Corporation, one of the largest producers of natural gas in the US, that they would be curtailing output by as much as 1 bcf/d added to the momentum as an intraday high at 1.989 was achieved after the news. Prices saw some retrenchment into the close on the realization that the EQT cuts were already showing up in the daily totals, the continued outage at Freeport, and an unhelpful demand outlook. The failure at 2 dollars and poor close keeps that level as solid resistance followed by 2.024 and 2.159. Initial support rests at the convergence of the 9 and 20-day moving averages near 1.83 followed by 1.70.
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