Prices have seen some stabilization since Monday’s massive losses, although rhetoric has shown little sign of dissipating. Support emanated from stimulus measures floated by the Trump Administration yesterday, as equities staged a strong bounce from their lows. Weakness resumed today as the Saudi’s tossed out more threats regarding production ramp-ups and Russia showed no signs of softening their stance. The crude did manage to eat up some of the 6 dollar chart gap overnight before weakening into the day session, with negative API numbers leading to concern over the DOE release today. The complex ended the session weaker as April crude settled down 1.38 at 32.98.
The DOE report showed a larger than expected build in crude stocks of 7.7 mb verses estimates at 2.6. Production down ticked to 13.0 mb/d while product stocks decreased more than estimated as gasoline was down 5.0 mb verses 3.1, and distillates were lower by 6.4 mb compared to estimates at 4.7. For the most part the report was put on the back burner as trade focused on global headline concerns.
At this point the threats by Saudi Arabia to ramp up production, with some reports suggesting they could reach 12 mb/d, have not had the desired effect of bringing Russia back to the table on cuts. Statements from their Oil Minister, Alexander Novak, did leave the door open to talks with the Saudi’s and offered underlying support to prices as they likely do not have the ability to increase output as much as the Saudi’s do to maintain their market share.
The news flow continues to portend volatility and economic uncertainty as colleges close campuses, sporting events are cancelled or not allowing fans to attend, and businesses suspend travel plans, among myriad other . If the battle between Saudi Arabia and Russia intensifies instead of coming to some sort of agreement on limiting production, we could see an extended period where prices flounder and continually test new lows, with the 20.00 area a psychological target if producers go to war.
Prices continued to surprise on the upside with April making a run at the 2.00 level today before pulling back late in the session. Belief that production will suffer in the wake of the crude oil rout supported the market and triggered short covering from the large speculative short position. With demand ignored during the move up it seems likely that we have run out of ammunition to extend the rally near term. With the poor close, the 1.85 area becomes support now as the market has to digest a likely unimpressive storage number tomorrow with a 63 bcf stock draw expected compared to the five year average draw of 99.
Charts Courtesy of DTN Prophet X
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