Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex continued to see a sideways trading pattern, with values capped above the 80.00 level as the April WTI settled lower by 92 cents at 78.01. Some relief has been seen due to the potential for interest rate cuts by June in the US and Europe. Skepticism remains over how much it might help given forecasts from the IEA for demand expanding by only 1.2 mb, with production expanding to a record high of 103.8 mb lead by the US, Brazil, and Guyana, which would be sufficient to meet the growth in demand.
Increasing US production to record levels remains a formidable force on OPEC output curbs, as their market share continues to be displaced by the world’s largest crude oil producer. With the supply/demand situation in balance, stepped up sanctions on Russian shipping options and hostilities in the Middle East are limiting downside pressures. In addition, the Chinese economy is offering mixed signals with the pickup in export shipments in the January-February period by 7.1 percent, raising hopes that GDP growth might reach 5 percent. Nevertheless, doubts remain given the weak property sector and slow growth in consumer spending.
The inability to widen the consolidation range above the 80.60 area in recent days keeps the 76–80-dollar trading range intact. This range has dominated trade for the past month in the absence of new fundamental influences that could affect the stable inventory outlook.
Natural Gas
The second half of the week saw prices retrench to the downside, with the April contract losing 11 cents yesterday and making another new low for the week today before settling with a loss of 1.3 cents at 1.805. The push down gained momentum after yesterday’s storage report. The 40 bcf draw was in line with estimates, but trade was apparently hoping that the recent pullback in production would lead to a miss on the downside. Total stocks now stand a substantial 551 bcf, or nearly 31 percent, above the 5-year average. Add that to forecasts for above normal temperatures and LNG exports struggling due to the Freeport outage and it makes sustained rallies difficult. The settlement below the 9-day moving average is a near term negative, with initial support near 1.75 tested today. Resistance is near 1.87 and then 2 dollars.
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