Written Commentary
CRUDE OIL
The charts remain bearish in crude oil with prices barely able to bounce from yesterday’s new low for the move spike down action early today. Apparently, demand concerns have surfaced again with Goldman predicting narrower European diesel margins as a sign of softer demand. On the other hand, high-frequency demand indicators from JP Morgan point to a global demand growth of 1.9 million barrels per day in April, but that reading was also below their expectations. Fresh overnight negatives include a higher UAE production capacity per day as the UAE has previously pressed aggressively for a higher quota, and in a longer-term psychologically bearish development Texas oil and gas drilling permits rose by 105 in April from March. However, the trade has clearly discounted the prospect of an Israeli attack on Rafah in southern Gaza despite very little fresh information on that situation over the lasts two days. While not a major supply negative, news that the Mexican oil company exported a small amount of oil exported to Cuba confirms the Mexican return to export activity after proclaiming last week they would attempt to refine all domestic oil production locally. Furthermore, the shift in pattern toward significant buildup of EIA and API crude oil inventories, a decline in US March oil exports of 7% M/M combined with reports that US Gulf Coast inventories have reached the highest level in 12 months leaves the US supply situation anchored in the bear camp.
NATURAL GAS
Despite a top of the range weekly injection and a reduction in the outage recently announced by a Norwegian company, the natural gas trade pulse higher is being forged without a specific bullish catalyst. On the other hand, the trade has seen evidence of reduced US production with the decline so far in 2024 estimated at 10%. While already a well-known issue, traders also think natural gas will see market share gained from coal used in electric generation. It is also likely the trade is overly optimistic toward short-term demand following forecasts of US cooling degree days running 15 degrees above normal.
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