Written Commentary
NATURAL GAS
Despite signs of vulnerability early in the Monday trade, the bull camp has extended its control and that in turn is likely to force ongoing short covering buying. Ongoing strength is likely with global LNG on floating storage down 7.7% versus last week. Even the demand side of the equation is supportive with forecasts calling for US cooling degree days to be 17 degrees above normal into this Saturday. Aggressive Russian targeting of Ukrainian power infrastructure is also supportive as Russia has two major pipelines flowing through the center of Ukraine from East to West. While Russia could have shut down supply through the pipeline at any time over the last year, they could indirectly shut down supply with major power disruptions.
CRUDE OIL
With a fresh low early today and the failure to hold the upside breakout yesterday, the charts discourage the bull camp. Unfortunately for the bull camp, a decline in March Saudi Arabia oil production was more than offset by a nine month high in Saudi oil exports. Fortunately signs of strong and growing Indian demand were noted from Indian government requests overnight that state run refiners and the country’s largest conglomerate should secure long term supply deals with Russia. Furthermore, the bull camp should be heartened by a 1.8% decline in Russian oil output in the January through April timeframe. In a sign of narrower trading ranges ahead and perhaps a minimal bearish signal, volatility measures in the energy trade have declined to the lowest level since 2019. In fact, Brent prompt spreads fell to the weakest level since early January suggesting a bearish or lack of interest trade. On the other hand, the kickoff of the North American summer driving season looms with at least one major US auto club predicting record road travel this summer. From the supply side of the equation, EIA crude oil stocks have posted surprise declines over the last two weeks and while the outflows were not significant, if they continue, that should provide July crude oil with the capacity to respect consolidation support just under $78.00. It should also be noted that the US dollar last week reached the lowest level since early March and that could help increase US exports. Partially negating the signs of tightening supply in the US is news that weekly crude oil in global floating storage increased by 15% last week.
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