Written Commentary
CRUDE OIL
While crude oil prices are trading softer in the early trade today, prices should be underpinned by news that Chinese March crude oil imports jumped by 22.5% versus year ago levels. However, a portion of the bullish impact from strong Chinese oil imports is countered by a significant jump in Chinese gasoline exports. On the other hand, Chinese first quarter iron ore imports posted a record reading giving credence to the argument that the Chinese economy is recovering. With an upside breakout in crude oil forged without a definitive “risk on” vibe from the US inflation report yesterday and the breakout up forged without help from the weekly EIA report, the trade seems fixated on the prospects of improving Chinese energy demand. However, this week’s US implied gasoline demand reading failed to post above 9.0 million barrels per day after 2 straight weeks of strong summertime-like readings, and that is a modest letdown from the demand front. While officials from the Biden Administration indicated they were looking for places to rebuild strategic oil supply reserves, current prices are $20 per barrel more than at the lows last month which means that the SPR reserve is likely to stay near the lowest levels since 1983. In conclusion, crude oil prices posted impressive gains without the benefit of a broad-based risk on vibe in the US markets and that should signal internal bullish fundamentals are capable of lifting oil prices further.
NATURAL GAS
Without a major risk on euphoria event unfolding yesterday, the natural gas market seemed to hit solid resistance and falter. We see a slight negative bias in place this morning following evidence that Chinese gas imports declined by 3.6% in the first quarter. Unfortunately for the bull camp, we expect today’s EIA working gas in storage report to be a negative to gas prices with the trade possibly assuming the end of the withdrawal season with another injection. With the Ukraine national oil company indicating flows of Russian gas through the Ukraine continue at a normal pace, heating demands on both sides of the Atlantic narrowing and the market short-term overbought from the 3-day rally, a measure of profit-taking is likely today.
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