Written Commentary
NATURAL GAS
Despite a significant jump in Asian LNG prices overnight from concerns of a dramatic expansion in the Middle East fighting, US gas prices posted a four-day low early today. Furthermore, US gas prices have also consistently discounted escalating threats to Ukrainian supply flow from Russian attacks. Therefore, we suspect European gas storage buying will remain above normal seasonal levels because of the Ukraine war. In fact, it should be noted that gas in EU storage is reportedly at 61% of capacity versus a five year average of 43%. In the end, with the big range down failure yesterday, we see natural gas returning to fair value on the charts around contract lows.
CRUDE OIL
While the upside explosion in gold and the dollar this week might be the result of issues other than a looming attack of Israeli interests by Iran or a surrogate of Iran, that issue remains front and center in the energy markets. In fact, the US continues to warn of an imminent attack and traders are not taking a chance that prices could explode higher on Monday’s opening. Surprisingly, crude oil prices are also sharply higher despite news that Chinese March crude oil imports dropped 6% perhaps because quarterly imports were minimally higher. On the other hand, crude oil prices today should see lift from trade chatter that US refinery capacity is expanding the daily call on physical US crude oil. It should also be noted that international crude grades are rising in sync which tempers ideas that speculation in US futures contracts is driving prices higher. Strength in the market is also surprising after the International Energy Agency reduced energy demand in “wealthy countries.” Even though press reports this morning suggest the crude oil market is poised to post a lower weekly trade, traders should not rule out a massive surge in buy orders today as traders pre-position for a potential attack against Israel or Israel assets abroad. The bear camp should also be emboldened by a deterioration in Chinese energy demand expectations this week and because EIA crude oil inventories have expanded by nearly 16 million barrels over the last three weeks.
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