The petroleum complex traded in a steady fashion following the weakness apparent yesterday. News that Trump will not be meeting with the Chinese President before the March 1 deadline set by the US and China for a trade deal to be reached limited fresh buying. Fears that a trade deal will be drawn out along with the prospect for additional tariff increases has raised concern over the prospects for the global economy. These concerns have been heightened by not only the impact on Chinese economic prospects but also from recent statistics suggesting the EEC economy appears to be slowing. The pressures from an unfavorable outlook for the global economy has been exascerbated by the strength to the dollar that has been evident despite recent pressure on interest rates.
Supply issues continue to remain in the background. These issues include not only Venezuela and the sanctions recently imposed by the US but also the approach of deadlines in June of waivers granted by the US on trade with Iran. Libyan production remains a question mark with reports suggesting limited gains by the governement in securing the Shahara oil field.
In the near term, the market might mark time ahead of the OPEC Monthly report slated for release on February 12 and the IEA report scheduled for release on February 13. We suspect that trading participants will likely focus on the prospective demand from the IEA and the supporting data from OPEC and the success of the current agreement.
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 a recovery in crude production. All in all, the Crude market looks to be in an uneasy equilibrium while product markets and particulalrly gasoline appear to be attracting more formidable support on both an outright and spread basis ahead of refinery turnaround.
The market registered modest gains as shortcovering into the weekend developed. The market still maintained a nervous tone as forecasts for moderate temperatures continue to be reflected in valuations. Of particular note was the movement of March Gas into a discount to April despite the tight stock situation and typically higher consumption during March compared to April. The breakdown in values in response to the 237 bcf draw in gas was surprising irrespective of forecasts suggesting a draw of 245 bcf. It suggests other factors are likely at work such as the expansion in production levels. Although we have breached what we felt would be support in the 2.64-2.65 area basis March, we believe the breakdown has likely overshot on the downside just as it did on the upside and that a more stable tone should become evident as the lower prices generate demand given the rather tight stock situation. Early estimates for next week’s EIA report are for a draw of 82 bcf compared to 183 last year and a five year average draw of 160 bcf.
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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