“Risk On” for Oil Prices as Market Plays US/Iran Waiting Game
Oil – Fundamental Analysis
Oil prices were up-and-down again this week in-sync with news emerging from the ongoing US/Iran talks. When the two sides are talking, the market has taken that as a positive development and prices soften. However, when the news from those meetings shows little sign of progress being made, the prospect of a US attack increases and, therefore, the risk premium comes back in. Some analysts estimate that premium is as much as $5.00 to $8.00/bl. currently. Additionally, on Friday, the US Embassy in Israel announced that non-emergency staff and their families could leave the country, citing safety risk. An unexpectedly huge gain in crude inventories failed to push prices lower. The late week rally has sent prices over a key technical resistance level. WTI had a High of $67.85/bl. on Friday which was +$2.00/bl. higher than the prior week’s High. The weekly Low of $63.60 occurred on Wednesday. Brent crude’s High was $73.00/bl. on Friday while its Low was $69.15 Wednesday. Both grades settled higher week-on-week. The WTI/Brent spread has widened to ($5.90) on the earlier week rally.
US/Iran talks are scheduled to continue next week with no real progress achieved this week which leaves the door open for speculation about a US attack over the weekend. Several US F-18 aircraft have been spotted at Israeli airbases. This possibility leads to the “Friday Effect” where traders have to carefully decide what position to take over the weekend since the market will not reopen until Sunday evening. Trump’s proposed deadline for a settlement agreement expires next week.
The OPEC+ group will meet this Sunday with a general expectation that they will decide to increase output at these higher price levels. Their dilemma remains one of adding barrels to an oversupplied market or holding back since the underpinning at the moment is geopolitical and not yet, physical. Saudi Arabia alone has increased its exports to 7.3 million bld. this month, up +400k bld. from January.
The US Treasury Department is allowing some shipments of American fuel can be shipped to Cuba to aid the humanitarian crisis there. Meanwhile, US commercial inventories of crude increased by the most in (3) years last week as a result of increased imports, decreased exports and lower refinery utilization.
The Energy Information Administration’s Weekly Petroleum Status Report indicated that commercial crude oil inventories for last week increased +16 million bl. to a total of 436 bl. million and -3% below the 5-year average. The API forecasted a +11.4 million bl. US refinery utilization was 88.6% down from 91.0% last week representing -400k bld. to 16.7 million bld. Gasoline demand was -15k bld. to 8.7 million bld. Total motor gasoline stocks decreased -1.0 million bl. to 255 million bl. and are now +4% above the 5-year average. Distillates were -0.3 million bl. at 120 million bl. and are now at -5% below the 5-year average. Inventory at the key Cushing, OK hub changed +0.9 million Bbl. to 24.9 million Bbl. or 32% of capacity. The SPR held at 415 million bbl. Imports of crude oil were +200k bpd. to 6.7 million Bbld. vs. 6.5 the prior week while exports were 3.7 million bpd. vs. 4.3 the prior week. Exports of petroleum products were 6.6 million bpd. last week vs. 7.0 the prior week. Total US oil production was 13.7 million bld. last week vs. 13.5 last year at this time. Total US active rigs were -1 to 550 vs. 593 last year with -2 oil, +1 in gas.
AAA’s average US retail gasoline prices continue to rise slightly at the pump and were most recently reported at $2.99/gal., +$0.065/gal. vs. last week, +$0.10/gal. from last month and -$0.13/gal. less than a year ago.
Construction spending in December was +0.3%. Unemployment claims last week rose +4k to 212k vs. an expected 215k. The Producer Price Index (PPI) rose more than expected last month coming in at +0.5% vs. a forecasted +0.3%. That resulted in a year-over-year increase of +2.9%. The PCE, the Federal Reserve’s preferred measure of inflation will be released on March 13th and some components of the PPI are part of that index. All (3) major US stock indexes are lower week-on-week on the inflationary growth. The USD is also lower, which is supportive of oil prices. Gold is over the $5,000/oz. mark again.
Oil – Technical Analysis
April 2026 WTI NYMEX futures are trading above the 8-, 13-day and 21-day Moving Averages. Prices have pierced the Upper-Bollinger Band Limit, an “overbought” signal than can lead to selling. Volume, shown in the second box, about the recent average at 340k. The Relative Strength Indicator (RSI), a momentum indicator shown in the 3rd box, is in “overbought” territory at “63”. Resistance is now pegged at $67.50 (Upper-Bollinger Band) while near-term Support is $67.00.
Looking Ahead
Should an attack on Iran by the US result in a disruption of not only their exports but other regional players, the US should have ample stocks to offset our current level of imported crude for several days. Refineries are using about 16.0 million bld. at present and we are producing just under 14.0 million bld., most of which is the lighter shale oil. In addition to curtailing crude exports, commercial storage at 436 million bl. can provide about (70) days’ worth of the present import amounts. And, at 715 million bl., the Strategic Petroleum Reserve (SPR) could provide an additional (120) days of feedstock at current input levels. Naturally, as we approach the summer driving season, refinery inputs will build up to around 18 million bld., shrinking the days of supply available. The “Friday effect”. On Friday, the US Embassy in Israel announced that non-emergency staff and their families could leave the country, citing safety risk. Traders will be very cautious with their open positions heading into the weekend since trading will not commence until Sunday evening.
Natural Gas – Fundamental Analysis
April NYMEX natural gas futures fell this week on warmer weather and a modest storage withdrawal for this time of year despite the cold that hit the Northeast. The week’s High was Tuesday’s $3.15/MMBtu while the Low was Friday’s $2.78. Natural gas demand this week has been estimated at up to 121 Bcfd while production was thought to be 106 Bcfd. LNG exports held at 18.0 Bcf. In the UK, natural gas prices at the NBP were most recently at $10.75/MMBtu while Dutch TTF futures were $11.25. Asia’s “JKM” was quoted at $10.75/MMBtu. The EIA’s Weekly Natural Gas Storage Report indicated a withdrawal of
-52 Bcf vs. a forecast of -60 Bcf. Total gas in storage is now 2.018 Tcf, now at +7.5% above last year and -0.3% below the 5-year average.
Natural Gas – Technical Analysis
April NYMEX natural gas futures fell this week on warmer weather and a modest storage withdrawal for this time of year despite the cold that hit the Northeast. The week’s High was Tuesday’s $3.15/MMBtu while the Low was Friday’s $2.78. Natural gas demand this week has been estimated at up to 121 Bcfd while production was thought to be 106 Bcfd. LNG exports held at 18.0 Bcf. In the UK, natural gas prices at the NBP were most recently at $10.75/MMBtu while Dutch TTF futures were $11.25. Asia’s “JKM” was quoted at $10.75/MMBtu. The EIA’s Weekly Natural Gas Storage Report indicated a withdrawal of-52 Bcf vs. a forecast of -60 Bcf. Total gas in storage is now 2.018 Tcf, now at +7.5% above last year and -0.3% below the 5-year average.
Looking Ahead
There has been a rapid warm-up for most of the country and the 8-to-14-day forecast looks bearish for natural gas demand. April is a shoulder demand month but also the first month of the traditional reinjection cycle which may lend a floor to prices. LNG exports remain steady as international prices stay well-above Henry Hub.
Tom
Tom Seng, Ed.D.
Assistant Professor of Professional Practice in Energy
Ralph Lowe Energy Institute
Neeley School of Business
Texas Christian University
TCU Box 298530
RJH-105C
Fort Worth, TX 76129
[email protected]
817-257-1022