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Energy Brief April 12

by AFS Archer Financial Svcs | Apr 12, 2019
by Steve Platt and Mike McElroy

Price Overview

The petroleum complex bounced back following yesterday’s price breakdown. Strength was linked to stronger equity values and ongoing fear that Libyan production will deteriorate as fighting for government control continues. The high level of supply disruptions, which also include the OPEC+ output cuts along with the expiration of Iranian waivers and Venezuelan production declines has brought the focus back on the supply side rather than the uncertainty associated with the demand side and the weakness to the global economy. The disruptions have helped balance the market at a time when stocks were high, but also has potential to overextend on the upside when sustainable production looks to be expanding.

Daily May WTI Crude Oil Chart Apr 12

The current adjustment process could ultimately lead to changes in the opposite direction as both demand and supply respond to price. This will have more of an influence as time wears on and higher prices have a chance to impact demand. How it plays out remains to be seen, but the impact of higher prices, particularly those artificially induced by policy and political events, all to often have a result which is the opposite of what you might expect.

In the near term we are content to sit on the sidelines in crude and look for a top to develop near current levels on the prospect that the supply disruptions will begin to reverse as we move into the 2nd half of the year. Any appearance that a resolution of the US/China trade dispute is about to take place could be used by world producers as an excuse to revive production levels and more aggressively fight for market share.

Natural Gas

Prices traded in a limited range today after weakness seen yesterday following the EIA release. The 29 bcf build after reclassifications was above expectations and helped to push prices lower by nearly 4 cents on the session. Today’s activity was muted by a lack of any notable changes to demand forecasts as we work through the shoulder season. Underlying support emanated from the return to service of the Cheniere LNG loading terminal. Expectations for a large storage build next week kept end-week buying to a minimum. The estimated 80 bcf increase would be well above the 5 year average build for this time of year at 21 bcf. We continue to look for a tightening situation into the summer months and are looking to be a buyer of August in the 2.73-2.75 area.

August Natural Gas Daily Chart

Charts by DTN Prophet X 

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