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Energy Brief March 8

by Archer Financial Services | Mar 08, 2019
by Steve Platt and Mike McElroy

Price Overview

The Petroleum complex came under selling pressure with values taking out key support near the 55.50 level basis April and declining to as low as 54.50 before attracting better support late in the session on profit taking.  Reports of weakness in the Chinese and European economies prompted concerns over the demand side, which were exacerbated by the weak US jobs numbers.  In China the sharp contraction of 21 percent in export numbers helped raise concerns that the global economy is weakening faster than expected. These concerns were magnified by comments from ECB President Mario Draghi indicating that the European economy was showing continued weakness and there were few signs of imminent recovery.  Although the supply side remains a source of uncertainty, reports that Libyan production was beginning to recover along with ideas that US output would continue to expand offset any bullishness emanating from OPEC production restraint.  Additional selling was likely attracted by reports that the US was allowing more time to wind down contracts with PDVSA, which appeared to limit concern over the Venezuela situation.  The deterioration of the political situation in Venezuela appears to be reaching a breaking point with reports of widespread electrical blackouts posing what could be an unsustainable political and economic situation for the Maduro governement.  Near term we still feel a setback toward the 53.00 area is reasonable given the rising concern over global economic prospects and the optimistic outlook for US production in the coming year.

crudeoilfutures

Natural Gas

After retrenching from the 2.90 area in the April contract at midweek, prices made another run at that level after a larger than expected storage draw was reported yesterday.  The 149 bcf decrease was above estimates and leaves stocks more than 30% below the 5 year average for this time of year.  The buying followed through this morning as prices topped out at 2.895 before failing again to penetrate 2.90.  With another large drawdown expected in next week’s report (198 bcf verses a 5 year average of 99) it appears likely that the resistance will be tested again early next week.  With temperatures currently expected to normalize in the coming weeks a major violation of the 2.90 level seems unlikely.  Look for a pullback toward the 2.67-2.69 area where underlying support should surface due to the low inventory levels.
 
Natural Gas Futures

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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