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Energy Brief February 25

by Archer Financial Services | Feb 25, 2019
by Steve Platt and Mike McElroy

Price Overview

The Petroleum complex traded lower following a message by President Trump posted on Twitter, warning OPEC not to raise prices and risk damaging the global economy.  The administration’s opposition to further price increases appeared to inject uncertainty toward Saudi plans to cut production, and recent strengthening of prices from a low in WTI of 43.00 at year end to 57.60 last week.  Some disappointment might also have been due to the failure to reach a trade agreement with China as talks were extended.
crude oil chart

It is somewhat incredulous that a Tweet by Trump could provide such turbulence in the market on the downside.  If anything, it tears at OPEC as a viable organization and instead suggests that only the Saudis, Russia and the US matter in exerting pricing power on the market.  The other real threat might be prices themselves and the impact that renewables, including electric power, might have on demand in both the short and long term.  The sanctions on Iran are being ignored as a supporting force given that the Trump administration might defer a decision on eliminating the waivers in favor of maintaining a weak price environment for US consumers, providing a potential boost to the economy as we move toward the 2020 US elections.

The breakdown from the 57 area basis April crude tends to validate our belief of a two sided trading pattern, with downside potential back toward 53.00 before support develops.  The Chinese trade talks are still being drawn out as we expected past the March 1st deadline, and uncertainty with respect to the Chinese economy persists.  The possibility that Russia will move slowly at cutting output is also in the background as a negative influence.  

 

Natural Gas

Prices traded higher today on forecasts for colder weather to persist into next week.  The potential for stocks to remain low, despite the approach of spring, seems to be a growing concern.  Record high production as we head into a decreased demand period will help to discourage prices from getting carried away on the upside.  Expectations for this week’s EIA report point to a withdrawal of 157 bcf compared to 85 a year ago and the five year average decrease of 104 bcf.  On the upside, stiff resistance should build toward the 2.85 area basis April.

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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