Ralph Lowe Energy Institute – Neeley School of Business, Texas Christian University Weekly Oil & Gas Commentary February 21, 2025

“Range-Bound Oil Market Breaks Out to the Downside”

Oil – Fundamental Analysis

After a bullish start to the holiday-shortened trading week, oil prices look to settle lower on market uncertainty as numerous conflicting factors played out. An attack on a crude pipeline pumping station, Trump Administration tariffs and plans for the SPR, a possible ceasefire between Russia and Ukraine and the 4th-straight increase in crude inventories had traders looking at? mixed signals all week. In the end, the failure to breach a key technical area sent prices lower ahead of the weekend. April 2025 WTI saw a High of $73.20/bbl. on Thursday’s inventory report that showed draws in both gasoline and distillate stocks. The Low was Tuesday’s $70.20. Brent hit a High of $77.20 on Thursday and a Low of $74.10 on Monday. Both grades settled lower week-on-week. The WTI/Brent spread is currently at -$4.00.

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The Tuesday drone attack on the CPC pipeline, Kazakhstan’s key export conduit, set a bullish tone for the week. Announcements by President Trump were a “mixed bag” for oil this week. On the one hand, his ?plan to refill the SPR added some upside to prices as well but “(filling) it up fast” is easier said than done as there are limitations on how much crude can flow into the various caverns on a daily basis. On the other hand, talk of a Russia/Ukraine ceasefire is seen as bearish as is his talk of tax breaks for US oil & gas companies which would only increase production.

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Goldman Sachs does not see much of a drop in oil prices should a Russia/Ukraine ceasefire take place as the former’s participation in OPEC+ constrains their output. Meanwhile, BofA predicts that a ceasefire could lead to as much as a -$10/bbl. drop in the price of Brent crude. The other wild card in the mix is whether or not OPEC+ will increase output in April as previously announced. Bloomberg is reporting that, according to analysts with the oil exporting group, there are talks about pushing out the increase further despite the US President’s call for them to release more production. Meanwhile, the cold weather in the US has created a “double-edged sword” for oil prices as heating oil demand has increased but frigid temperatures have reduced production in areas such as the Bakken Shale in North Dakota.

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In light of President Trump’s threat of tariffs on Canadian crude imports,? legislators there are considering some shelved oil pipeline projects that would increase volumes shipped to their West Coast. And, in China, the retaliatory tariffs on US energy imports has led to cargoes of LNG being diverted to Europe and less US coal being brought in.

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The Energy Information Administration’s Weekly Petroleum Status Report indicated that commercial crude oil inventories for last week increased by +4.6 million Bbl. to a total of 432.5 Bbl. million and at?-3% below the 5-year average. It was the 4th-straight gain in oil stocks. The API had forecasted a change of -3.4 million Bbl. while market analysts called for a gain of +2.4 million Bbl. US refinery utilization rose to 84.9% from 84.5% , which represents a -15k bpd. drop in inputs to 15.4 million bpd. Total motor gasoline decreased -0.2 million Bbl. to 248 million Bbl., and -1% below the 5-year average. Gasoline demand fell by -337k bpd to 8.2 million bpd. vs. 8.6 the week prior and 8.2 a year ago. Distillates decreased by -2.1 million Bbl. to 117 million Bbl., falling to -12% below the 5-year average. Total distillate demand increased +390k bld. to 4.4 million bld. Inventory at the key Cushing, OK hub changed +670k Bbl. to 23.3 million Bbl. or 30% of capacity. The SPR was flat at 395 million Bbl. Imports of crude oil were -500k bpd. to 5.8 million Bbld. vs. 6.3 the prior week while exports were 4.4 million bpd. vs. 3.9 the prior week.? Exports of petroleum products were 7.0 million bpd. last week vs. 6.4 the prior week. Total US oil production rose +3k bpd to 13.497 million Bbld. vs. 13.3 last year at this time. The number of US rigs drilling for oil increased +7 last week to a total of 487 vs. 503 last year.

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AAA’s average US retail gasoline prices at the pump were most recently reported at $3.162/gal.,+$0.003/gal. from last week, +$0.036/gal. from last month and +$0.112/gal. less than a year ago.

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Consumer sentiment fell this month to a 15-month low of 64.7 as households worry that the Trump tariffs will eat at their purchasing power. Sales of existing homes last month fell -4.9%, much higher than the forecasted -2.6%. All (3) major US stock indexes are lower on the week mainly on the consumer perspective on tariffs. The USD is lower which may be helping set a floor for crude prices this week. ?

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Oil – Technical Analysis

April 2025 became the “prompt” month this week and NYMEX WTI Futures are below the 8-, 13-, 20- and 200-day Moving Averages but above the 100-day MA. They have been range-bound for (3) weeks, now and the failure to hold above the 200-day was technically bearish Volume, shown in the second box, is ?about average at 225k. The Relative Strength Indicator (RSI), a momentum indicator shown in the 3rd box, is “slightly-oversold” at the “44” mark. Resistance is now pegged at $72.15 (-day MA) with near-term Support at $70.50.

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Looking Ahead

US refiners will soon enter the “turn-around” period where they prepare for summer blends of gasoline and conduct routine maintenance. While this could raise pump prices in the near-term, this also reduces demand for crude feedstocks. The Trump Administration’s “flood the zone” strategy is causing uncertainty and chaos in global crude markets currently. As some of these policies become clearer and are implemented, traders will ascertain their impacts. There are questions to be answered in the near term. “Will OPEC+ delay again their output increase?” “How soon will the Trump Administration announce bulk crude purchases for the SPR?” “Will a ceasefire be negotiated between Russia and Ukraine and will it last? Will that be enough for sanctions against Russia to be removed?” ?Near-term, the NOAA 8-14-day forecast is bullish for heating oil demand in the Northeast. ??

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Natural Gas – Fundamental Analysis

The rally in natural gas has continued into the 3rd week on below-normal temperatures and another large storage withdrawal that has increased the deficit to year-ago and, 5-year average levels. Additionally, LNG send out continues to increase and set a new record high. March NYMEX Henry Hub prices had a High of $4.35/MMBtu Thursday with a Low ?of $3.55 on Tuesday. Supply last week was -1.0 Bcfd to 111.5 Bcfd vs. 112.5 the prior week on weather-related freeze-offs.5. Demand was +11 Bcfd to 146.5 Bcf vs. 135 Bcfd the week prior, with the biggest increase in Residential consumption. Exports to Mexico were 6.4 Bcfd vs. 6.4 the prior week. LNG exports were 16.1 Bcfd (a new high) vs. 15.7 Bcfd the prior week. The EIA’s Weekly Natural Gas Storage Report indicated a withdrawal of -196 Bcf vs. a forecast of –

-188 Bcf. ??Total gas in storage is now 2.1 Tcf, dropping to -15.5% below last year and 5.3% below the 5-year average.

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Natural Gas – Technical Analysis

March 2025 NYMEX Henry Hub Natural Gas futures remain above the 8-, 13- and 21-day Moving Averages and are around the Upper-Bollinger Band limit, a SELL signal. ?Volume is about average at 200k. The RSI is “very overbought” at “70”. Critical Support is pegged at $4.00 with Resistance at $4.20 (Upper-Bollinger Band threshold).

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Looking Ahead

European natural gas storage levels were most recently reported at 1.8 Tcf as large withdrawals continue. ?Prices were most recently at $14.40/MMBtu. As with heating oil, the next (14) days look bullish for natural gas demand. However, it appears that global LNG demand will remain robust in the near-term. ?Cheniere Energy is reporting first deliveries of LNG from its expansion project at the Corpus Christi LNG facility. More mild temperatures appear to be in the forecast for early March after the coming week’s cold along the Eastern Seaboard.

Tom

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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