Prices rebounded with the March crude reaching nearly 2 dollars higher intraday, peaking at 51.73 before ending the session up 1.23 at 51.17. Reports from China that new coronavirus cases were the lowest since late January fueled the rebound. The market had floundered overnight following yesterday afternoon’s API report that showed a 6 mb increase in crude oil stocks, more than double estimates. The market seemed to set aside the report to wait for DOE confirmation, finding support on reports that OPEC had suggested an additional 600 tb/d in output cuts along with the storyline out of China.
The DOE report confirmed the API with a large build of 7.5 mb reported in crude compared to estimates of a 2.9 increase. Gasoline stocks were down .1 mb in contrast to expectations for a build near .7 mb, and distillate stocks declined by 2.0 mb against predictions of a .6 drawdown. Total petroleum stocks declined 1 mb and production upticked to 13 mb/d from 12.9 last week.
The DOE numbers did little to rein in the upside move, as prices settled at the high end of the day’s range as the global situation regarding the coronavirus remains the markets main concern. The crude market will be gauging OPEC’s position closely. The fact that Russia has yet to commit to additional output cuts might signal that they believe that the best course of action might be to let prices fall to shut off production. The 52 area basis March crude will likely offer solid resistance.
After probing to a new low of 1.753 yesterday, prices have recovered over 9 cents to end today’s session at 1.844. The market has almost filled the gap on the charts from Monday’s sharply lower open. Revisions to short term forecasts increased demand expectations and precipitated the bounce, with short covering adding support as the market had reached oversold levels. Trade will likely continue to be cautious as it tries to discern the fallout from the coronavirus outbreak as production continues to give hints of slowing, with today’s dry gas output estimated at 93.7 bcf from 94.5 yesterday. Tomorrow’s EIA report is expected to show a draw of 103 bcf compared to the five year average of 131. The 1.75 area held up to the early selling pressure this week, and although the weather is still not threatening a demand spike, we expect the recent strength to follow through near term to fill the gap on the charts above 1.977 basis March.
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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