Written Commentary
CRUDE OIL
While June crude futures have posted a double low this morning with the Friday low at $76.72 the bias in the market remains down with prices extending declines despite evidence of expanding weekly road and air traffic in North America, Europe, and Asian-Pacific regions. However, negative macroeconomic sentiment (fear for deteriorating energy demand) and the potential for less refinery demand for crude because of softening crack margins the bear camp picks up where it left off last week. Even though June crude oil rejected the 6th straight lower low last Friday, fears of tighter supply continue to be trumped by fears of demand deterioration. In fact, there was news last week that Kazakhstan ramped up its oil exports significantly in the first quarter with significant more supply flow to China. However, the supply-side of the equation could increase support in the market after Putin reportedly interacted with the Saudi Crown Prince with the conversation reportedly focused on the “price cap”. In a very minimal negative last week, US oil and gas drilling activity posted the first increase since the beginning of the month and given strong earnings by the largest oilfield services firm in the world non-OPEC oil production might continue to offset a large portion of the OPEC+ reduction.
NATURAL GAS
With the recent net spec and fund short positioning narrowing and prices posting a low to high bounce of $0.40, the bear camp looks to have the technical edge into the new trading week. Last week, the Baker Hughes natural gas rig drilling count increased by two but is an insignificant change. With North American and European temperatures returning to seasonal norms, the speculative buying interest from last week is likely to reverse and prices could touch the top of the gap at $2.143. With weather normalizing and temperatures showing signs of returning to seasonal averages in the US and Europe and given the negative macroeconomic condition in the markets we see natural gas sliding in the week ahead.
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