Written Commentary
CRUDE OIL
Obviously, crude oil and the entire petroleum complex is under selling pressure this morning because of fear of higher interest rates and the potential for softening energy demand. The dominance of slackening demand fears is accentuated by the inability to find support from a sweep of tighter supply readings from the API yesterday afternoon. Furthermore, June crude oil has violated consolidation support and returned to the gap area from the strong April opening and that should add a measure of technical selling interest. Adding further to the bearish track this morning is a prediction from an industry information company projecting April US crude oil exports to fall from the March record of 4.6 million barrels per day. Other bearish developments are narrowing global refining margins, minimal strength in the US dollar, a 3.7% week over week jump in European crude in storage and reports of a large gasoline shipment from Europe to the East Coast. In conclusion, energy demand fears are in a front and center position today and an expansion of anxiety in outside markets will likely send prices even lower.
NATURAL GAS
It is hard to accept the idea that below normal temperatures in the US at the end of the heating season have prompted a solid bottom in natural gas, especially with signs that European storage increased last week and more importantly, that Ukraine has started to refill its strategic reserves. The Russian national gas company has predicted Europe will find it very difficult to refill its gas storage to the level seen this year but did not stipulate the reason why. However, the natural gas market had significant bearish conditions factored into last Friday’s low and the market retains a significant net spec and fund short. On the other hand, Chinese March LNG imports were up 16.9% after starting the 1st quarter out very soft. Expectations for this week’s storage injection call for an inflow between 60 BCF and 80 BCF. We remain highly skeptical of the bull case in natural gas as colder temperatures are not severe and are unlikely to extend.
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