Written Commentary
CRUDE OIL
While the petroleum complex continues to find strength from improving global risk sentiment, near-term demand concerns continue to be a source of headwinds. Even with recent bullish supply developments, crude oil and the products are vulnerable to pullbacks this week. May crude oil reached a two-week high yesterday before finishing with a mild loss and a negative daily reversal, but it is posting a moderate gain this morning. Iraq has shut down the flow of oil from Kurdistan to the Mediterranean, and this has underpinned prices this week. The EIA report showed a sizable decline in US crude oil stocks last week, and they have reached a 6-week low, but keep in mind that the previous reading was the highest stocks total since May 2021. Most of the draw occurred in the Gulf Coast. East Coast stocks saw a modest increase. There was a sharp decline in US crude imports, and they fell below 6 million barrels per day (bpd) for only the second time this year.
NATURAL GAS
A positive daily reversal in May natural gas may be an indication that the market is attempting to put in a low, but the fundamentals are bearish, with mild temperatures in the forecast and ample domestic supply. While the market has been under pressure today, it has so far avoided a new low for the move. Mild temperatures in the forecast for the eastern US are expected to cut back on residential and commercial demand, and that has pressured prices this week. There are reports that the Freeport LNG export terminal has increased its intake from 1.6 up to 1.8 bcf per day, and that could provide some support. The Reuters survey has a median forecast for US gas storage to show an increase 54 bcf in today’s EIA report versus a 15 bcf build last year and a 5-year average draw of 17 bcf. This would leave US gas storage 20.5% above its 5-year average level with only one week left in the traditional North American heating season. If there is a larger than expected draw, natural gas could lift well clear of Wednesday’s contract low.
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