Written Commentary
CRUDE OIL
With US crude oil production forecasted by the EIA to increase by 590,000 barrels per day to 12.4 million barrels per day this year and with year-over-year EIA crude oil stocks now holding a 59.8-million-barrel year over year surplus, the bear camp has an edge today. Certainly, OPEC+ could step up and reduce production further (many members are already struggling with production issues) and Chinese energy demand remains strong, we think the market lacks significant fresh bullish fuel this week. In fact, this week’s crude stockpile jump was the biggest in 19-months with stockpiles at the critical Cushing Oklahoma storage hub sitting at the highest level since June 2020 following 7 straight weeks of inflows. In conclusion, the supply side of the equation remains very bearish and will likely knock prices away from the top of the downtrend channel especially if Chinese energy demand hopes are dampened. The IEA increased their forecast for global oil demand growth this year and said that there could be a supply deficit late in 2023 due to further OPEC Plus production cuts, and that provided energy markets with early support yesterday. However, the EIA report yesterday showed a massive weekly increase in US crude oil stocks that lifted them to their highest levels since June 2021. While the EIA had a supply adjustment that boosted this week’s reading, this was still the fourth largest weekly increase on record. US crude oil production was steady at 12.3 million barrels per day (bpd) which remains the highest production total since April 2020. There was a modest increase in crude oil exports, while there was a sizable drop in crude oil imports and a moderate decline in crude oil refinery throughput.
NATURAL GAS
Natural gas prices have been unable to sustain upside momentum but have avoided a retest of their February lows despite a lukewarm near-term demand outlook. March natural gas remained firmly within its February consolidation zone and finished Wednesday with a moderate loss. The latest 6-to-10 and 8-to-14-day forecasts show a large portion of the eastern US with above-normal temperatures which will diminish residential, commercial, and power plant demand for natural gas. The Freeport LNG export terminal is finally starting to ramp up their operations, but their gas flows remain well below capacity. Even with limited operations from Freeport, US LNG exports are expected to reach their highest levels since May this week. After an unusually warm winter that has helped western Europe to build up their near-term supply, many of those areas are forecast to have cooler than normal temperatures next week which may provide some carryover support to US natural gas prices. Warmer than normal temperatures will continue to be a source of early pressure on natural gas prices. If there is a larger than expected storage draw in today’s EIA report, however, that could provide the catalyst for a sharp short-covering rally.
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