Today will be a quiet day in the US with all of the exchanges
closed for the Presidents Day holiday. Only electronic trading
will be open in the US. In addition IP week gets underway in
London today which should contribute to today being an even
quieter and lower liquidity day than normal. The spot WTI
contract is starting the week in negative territory while
everything else in the oil complex is showing a small gain for
the session so far. Asia is getting back to normal as China
returns from its week long Lunar New Year Holiday.
The April Brent/WTI spread is now hovering near it contract high
resistance level after holding support last week. The combination
of Saudi oil exports down to a level not seen since the third
quarter of 2011 along with North Sea maintenance scheduled to get
underway in March (Buzzard field) is keeping the Brent contract
supported at the moment.
Light week on the macroeconomic front with housing and inflation
data hitting the media airwaves in the US along with the normal
weekly jobless claims. The weekly oil inventory cycle will be
postponed one day due to the Presidents Day holiday. The API oil
inventory report will released on Wednesday afternoon with the
EIA data hitting the airwaves at 11 AM on Thursday. The weekly
Nat Gas inventory report will follow its normal time and schedule
of Thursday at 10:30 am.
The oil complex ended the week mixed... with the spot RBOB
gasoline contract surging higher during the second half of the
week as market participants became more concerned that supplies
could be an issue down the road. Once again RBOB gasoline is
largest gainer in the complex with HO declining after a warmer
than normal period.
WTI increased marginally on the week even as the Seaway pipeline
remains constrained due to the bottleneck at the Jonas Creek
terminal. The pipeline operator has not given any timetable for a
return to normal operating capacity. The spot WTI contract
increased by 0.15% or $0.14/bbl while Brent declined by about
0.16% or $0.19/bbl. Crude oil stocks in PADD 2 and Cushing were
modestly lower even as the Seaway remains constrained and
refinery maintenance season is getting underway.
The April Brent/WTI spread was marginally lower on the week after
widening by over $4/bbl the previous week. The April spread held
support last week and is currently trading at life of contract
highs (basis the April spread). The April spread is now within
about $6/bbl of the all time high for the spread (basis the
On the distillate fuel front the Nymex March HO contract
decreased modestly by 0.86% or $0.0228/gal on the week even as
distillate fuel inventories decreased modestly as temperatures
were about normal over parts of the US during the report period.
Gasoline prices increased strongly on the week after a draw in
inventories. The March Nymex gasoline price increased by 2.47% or
$0.0757/gal this past week.
The March Nat Gas futures contract declined strong on the week by
3.64% or $0.1190/mmbtu on the week and has now solidly breached
the lower support level of the $3.20 to $3.50/mmbtu trading range
that has been in play since November of 2012. The market has now
moved into a new, lower trading range of $3/mmbtu to $3.20/mmbtu.
With precious little time left to the current winter heating
season the bulls got another disappointment as the EIA weekly
inventory report was bearish versus the market consensus and
neutral at best versus the normal five year average net
withdrawal for the same week. The spot Nat Gas futures price has
breached the lower end ($3.20/mmbtu) of the trading range that
has been in play since November.
Thursday's EIA report was bearish from the perspective that the
report showed a net withdrawal that was modestly lower than the
expectations but around the five year average for the same week
but above last year's draw... which of course was an extremely
warm February. However, the number was bearish based on a miss to
the downside versus the market consensus.
The 157 BCF withdrawal (around normal for this time of the year)
was below the market consensus calling for a withdrawal of around
162 BCF. The draw of 157 BCF was less than my model forecast
(-170 BCF withdrawal) this week. The year over year inventory
situation remains in a deficit position versus last year but
still surplus versus the more normal five year average. The
current inventory surplus narrowed slightly to 348 BCF above the
five year average or about 16% above.
Next week's EIA inventory report (will be issued on its regular
schedule and time in spite of holiday on Monday) is likely to be
bearish after a mild week along much of the east coast. The early
projections are calling for a net withdrawal in a range of about
120 BCF to 155 BCF compared to last year's withdrawal of 155 BCF
and versus the five year average for the same week of 145 BCF.
Obviously the report will be bearish if the number falls within
the range. I will issue my forecast in Tuesday's newsletter.
On the financial front equity markets around the world were
mostly lower for the week with two bourses now in negative
territory for the year... Brazil and last year's leader Germany.
Brazil is fighting inflation risk while export oriented Germany
has been impacted by the stronger euro. The Index is now only
showing a year to data gain of 0.4% after experiencing the
largest one week loss of the year of 2.16%. Global equity markets
have been on the defensive since peaking at the end of January
and at least for the moment can still be categorized as being in
a downward corrective pattern and not yet a change in the
underlying trend. Equities were a negative price driver for the
oil complex last week.
The euro was lower on the week while the US dollar was higher
driven mostly by concerns over a possible currency war. Last week
the global equity markets were a negative price driver for oil
and most commodity markets.
I am maintaining my view of WTI at neutral to cautiously bearish
and maintaining my view for Brent at neutral to cautiously
bearish. That said I am continuing to fly the caution flag as any
additional equity market corrections will impact oil prices in
much the same way... a round of profit taking selling.
Furthermore the spot Brent contract has breached its technical
resistance level of about $118/bbl suggesting lower prices in the
I am maintaining my Nat Gas view and bias at cautiously bearish
as the weather forecasts and nearby temperatures remain bearish.
As I have been discussing for weeks the direction of Nat Gas
prices are primarily dependent on the actual and forecasted
weather pattern now that we are still in the heart of the winter
heating season and currently those forecasts have turned a tad
more bearish at the moment.
Markets are mixed as shown in the following table.
Dominick A. Chirichella
Follow my intraday comments on Twitter @dacenergy.
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