Belief that the US and China were close to a trade deal helped underpin values within the petroleum complex. Background support was provided by reports that OPEC output had dropped in February due to sharp cuts by Saudi Arabia and other Persian Gulf producers.
Crude prices appear likely to retest resistance in the 57.00-57.50 range basis April. Once again we look for that area to hold as the refinery turnaround and maintenance season apporaches and the associated lower crude offtake levels limit demand for wet barrels. This should continue to attract selling in crude and buying of products, helping strengthen the cracks, particularly in gasoline ahead of the pick up in summertime driving. The gasoline crack spread is still relatively cheap compared to the past few years at around 17.25 basis May. This is up as much as 4.00 from the lows reached at the end of January.
Demand concerns remain a background influence especially on a global level given the weakness to both the Chinese and European economies. Although comments by OPEC members continue to suggest a move toward rebalancing the surplus situation, the market is uncertain with respect to production from exempted members.
Prices failed against resistance above the 2.85 level basis April on forecasts for moderating temperatures next week that should help lower the pace of withdrawals. Underlying strength continues to be linked to the low inventory levels. Expectations point to a draw of 127 bcf from storage for the week ended March 1st compared to 60 last year and a five year average of 109. Although demand is expected to fall in the weeks ahead, the focus will soon switch to how quickly inventories rebuild into summer when demand for cooling will rise. With the 8-14 day forecast indicating temperatures will steadily rise, resistance toward the 2.85 area basis April should remain stiff and values look poised to slip toward 2.67-2.69 where support should develop as concern swings back to low inventories.
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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