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Energy Brief February 6

by Archer Financial Services | Feb 06, 2019
by Steve Platt and Mike McElroy

Price Overview

The petroleum complex traded  in a   volatile fashion with values initially declining to below 53.00 basis March WTI as weak growth in the EEC and strength to the dollar raised concern that global economic growth is faltering and could adversely affect global demand for crude oil.  
crude oil chart

The market attracted support toward mid morning in response to the DOE report.  The release showed crude stocks rose by 1.3 mb compared with expectations of an increase of 2.2. Cushing stocks rose by 1.4 mb to 42.6 mb, which helped weaken the switches in favor of the back months in crude.  Refinery utilization rose by .6 percent to 90.7.  In products, distillate stocks fell by 2.3 mb compared to expectations for a 1.8 mb decline as cold weather last week encouraged the use of heating oil.  Gasoline stocks rose by 513 tb, short of the 1.6 mb gain that had been expected.  Product supplied of gasoline reached 9.1 mb, putting the YTD increase at 1.3 percent.  In distillate, product supplied surged to 4.7 mb which put it 4.6 percent above year ago levels.  
crude oil chart 1

The market still appears to be confined to a trading range with the Venezuelan disruptions being mitigated by the adequate stock situation and high US production, along with ideas that international pressure will eventually force the Maduro governement to step down, leaving open the chance for a recovery in crude production.  In addition, reports that Libyan troops had retaken control of the Shahara Oil Field might free up additional supplies provided the situation stabilizes. On the other hand, reports the Saudi’s are trying to make some non-OPEC members who are participating in the current agreement official members of OPEC suggests the potential for a more coordinated effort to support oil prices.  All in all the crude market looks to be in an uneasy equilibrium while product markets and in particular gasoline appear to be attracting considerable support on both an outright and spread basis ahead of refinery turnaround.

 

Natural Gas

The market has attracted modest support as forecasts for cooler temperatures over next few weeks along with the oversold condition has prompted some short covering.  Expectations of a sizable draw in this week’s EIA report also helped prop up prices.  Estimates are indicating a withdrawal of 235 bcf compared to 116 bcf last year and a five year average of 150.  This appears to be injecting some caution back into the market given that a number in this range will bring stocks back down in the area of 17.5 percent below the five year average.  This should continue to provide support near this weeks lows in the 2.64-2.65 area basis March and provide the impetus for a further move to the upside to retest the 2.85 level.

natural gas chart
 

Charts Courtesy of DTN Prophet X


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 views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff. 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 ADMIS position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to. The authors of this piece currently maintain positions in the commodities mentioned within this report. Charts Courtesy of DTN Prophet X, EIA.

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