The Petroleum complex came under concerted selling pressure in crude following reports that showed a large build in crude oil inventories of 7.1 mb. Additional selling was traced to US production levels, which continue to expand and reaching12.1 mb/d last week. Ideas that US production levels will increase as Chevron and Exxon vie for dominance in the Permian Basin continue to undercut bullish sentiment. Reports swirled that the US and China were close to a trade deal as negotiations continue and uncertainty remains as to when a deal might be finalized.
In products, the report showed gasoline inventories fell 4.2 mb while distillates were off 2.4 mb. The larger than expected decline in gasoline inventories supported the crack despite the rather lackluster product supplied, which currently stands at slightly below last years levels. Ideas this might change as weather improves and driving picks up likely helped attract buying in gasoline, particularly as we approach refinery maintenance turnarounds. Today’s move toward 18.56 on the May gasoline crack has taken values into resistance. Better demand as we move into April along with better export levels should help uncover additional buying that has the potential to carry the gasoline crack toward the 20.00-20.50 level. Support should be evident near 17.00.
The failure against the resistance in the 57.00-57.50 range basis April crude yesterday sets up the potential for values to retest the lower end of our projected range near 53.00. Nevertheless key support near term rests near the 55.50 area. Penetration of this area will likely hinge on better supply availability from Libya or failure of Russia to cut production significantly. Demand concerns also remain a background influence especially on a global level given the weakness to both the Chinese and European economies.
Prices failed near the 2.90 area basis April natural gas as the warmer weather forecasts weakened values. The outside day on the chart should attract liquidation pressure particularly if demand falls as much as expected in the coming weeks. Expectations for tomorrow’s report point to a draw in inventories of 127 bcf for the week ended March 1st compared to 60 last year and a five year average of 109 bcf for the period. Although demand is expected to fall in the weeks ahead, the focus will eventually turn to how quickly inventories rebuild into summer when demand for cooling will rise. With the 8-14 day forecast indicating temperatures will steadily rise, values look poised to slip toward the 2.67-2.69 area 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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