Prices strengthened in response to renewed optimism a Chinese US trade deal would be hammered out. Ideas that givern the Iranian sanctions and commiittment by the Saudis to restrain production and support prices as a swing producer appears to be providing good support. Nevertheless some caaution remained amidst the ongoing increases in US production and the appearance that supply availability remains adequate as we move into turnaround.
Pledges by the Saudis to cut additional volumes in March along with US sanctions on Iran and the possibility that waivers granted late last year will not be renewed continued to be strong sources of support to values. The major headwind will be compliance levels, and whether higher prices lead to increased output from non-OPEC producers as well as participants in the agreement. With US exports likely to expand as production increases, the market will continue to be a two sided trading affair with a firm bias. Resistance should be apparent near 57.00-57.50 for April WTI crude. The Chinese trade talks look like they will be drawn out beyond the March 1st deadline, and recent economic statistics still suggest that both the US and Chinese economies are sluggish at best. In addition, given high US production levels and the reluctance of Russia to cut production significantly, questions over OPEC+ actions might begin to surface and pose a drag on values to the upside particularly given the higher prices. The DOE report was generally as expected with with crude inventories increasing by more than expected at 3.7 mb of a compared to expectations for a 3.1 mb increase while gasoline stocks fell more than than expected at 1.5 mb while deisel declined by 1.7 1.7 mb. Further increases in crude stocks should help buffer the market on the upside while the cracks should benefit from further declines in inventroy levels.
The market eked out modest gains with participants focusing on the approach of spring and record high production levels rather than the cold conditions dominting nearby demand forecasts. Low inventory levels at 21 percent below the five year average continue to be underpin values. Early expectations for next week’s EIA are for a withdrawal of 157 bcf compared to 85 bcf mcfa year ago and the five year average of 104 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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