Written Commentary
CRUDE OIL
While crude oil did not forge a fresh higher high overnight and prices have recoiled from the initial highs, the path of least resistance from the charts remains up. On the other hand, internal supply side fundamentals remain very supportive of both crude oil and gasoline following noted contractions in US inventories this week. Other bullish developments from supply-side of the equation this week are warnings from the Saudi Oil Minister threatening shorts ahead of next week’s OPEC+ meeting. Also from the supply side, the markets yesterday were presented with precipitous weekly declines in EIA and API crude oil and gasoline inventories. Crude oil imports for the week stood at 5.85 million barrels per day compared to 6.860 million barrels the previous week. Going forward, the looming OPEC+ meeting next week should provide the energy markets with consistent “buy the rumor” support even though there are several potential undermining macroeconomic demand threats. Dampening the supportive vibe into the OPEC+ meeting are Russian predictions that no cuts will be added next week. While it does not seem like the reports of a 2nd Chinese Covid outbreak are real, the importance of Chinese energy demand in the world equation remains very significant with Chinese traffic levels remaining strong and fresh stories of surging Russian exports to meet demand in Asia. It should also be noted that there could be a future supply disruption from Norway with drilling unions seeking mediation after a failure in negotiations.
NATURAL GAS
Natural gas prices this week have basically consolidated despite a negative impact from the weather front. However, we expect temperatures to become more seasonal and supportive in the weeks ahead. However, price impacts from Europe remain bearish with European cash prices declining from signs of softer industrial demand. In fact, overnight projections see European gas demand eroding over the coming 12 months! On the other hand, strategic European gas storage was estimated at only 66% of capacity by Bloomberg this week and without further building of supply before summer cooling demand increases the market might find support from fresh purchasing for storage. Unfortunately for the bull camp, the EIA today is likely to produce the first “triple digit” weekly injection to working gas in storage, and that could psychologically favor the bear camp. On the other hand, the surplus inventory readings versus the 5-year average have declined since the 3rd week in April suggesting demand might be stronger than the market realizes. With seasonal demand rising, the May uptrend channel extending, and the prospects of a Norwegian energy sector strike leaves the bull camp with a minimal edge.
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