Written Commentary
CRUDE OIL
In retrospect, the recovery in crude oil prices this week after a $9.00 compacted washout has been very anemic. Furthermore, supply and demand news from China this week has been negative with disappointing industrial production and retail sales readings overnight combining with a 2.7% increase in Chinese May oil production (relative to year ago levels). Adding to the bearish Chinese supply news is a 2.1% gain in Chinese January through May oil production. However, signs of very active Middle East oil trading is thought by some to suggest supply flows to Asia might increase. Unfortunately for the bull camp the Chinese national oil company this week has been selling crude oil in Oman and there are expectations that Chinese refinery activity will slow. On the other hand, there has been a dramatic improvement in “global market psychology” this week, supertanker and pipeline rates have jumped in a tangible sign of stronger demand from Asia. According to Bloomberg, US crude oil inventories excluding SPR supplies have only reached the highest level in 3 months. Another limiting factor from this week’s data is a very sharp increase in US imports of Saudi crude oil. On the other hand, crude oil imports last week were 6.381 million barrels per day which is lower when compared to 6.400 million barrels of imports in the previous week. Fortunately for the bull camp, energy demand expectations have improved along with global economic psychology following evidence of lower US inflation, a pause in rate hikes by the US Fed and from multiple Chinese stimulus efforts. However, the trade has posted anemic gains following a massive decline and the bullish buzz has seemingly dissipated.
NATURAL GAS
Like the diesel market, we see natural gas continuing to coil sideways with fundamentals offsetting or minimally important. In fact, the market has displayed a lack of dominant opinion with the technical condition neutral after 11 days of range trading. However, with near-term US temperature forecasts favoring only average cooling demand likely remaining in place until Saturday, a slide to this week’s low down at $2.282 is possible after today’s EIA working gas in storage report from the EIA. On the other hand, the weekly EIA inventory surplus to 5-year average readings has declined by more than 6% from a burgeoning April surplus of 22.2% compared to 5-year average stock levels. Offsetting the surplus of US inventories are expectations of lower US lower 48 gas production this week. Unfortunately for the bull camp, gas flowing to LNG export facilities slowed this week reducing US demand and Russian gas exports to Europe in the first half of June were reportedly down 15% versus last month. Using the odds, a continuation of the June coiling pattern is likely to be extended with a slight negative bias attributable to cooler US temperatures this week and signs of slowing US exports for the rest of this month.
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