Written Commentary
CRUDE OIL
With another upside breakout in crude oil this morning and prices posting the highest prices since last August, sagging economic expectations and a significant weekly inflow to EIA crude oil stocks yesterday, the bull camp clearly has ongoing resolve and can discount negatives. Fortunately for the bull camp, EIA product stocks tightened, and the weekly implied gasoline demand reading jumped aggressively to a lofty at 9.3 million barrels per day providing positives to offset higher US crude availability. It is also possible that buyers are pre-positioning for the seasonal increase in tropical storm activity, and it is also possible that buyers have been brought in off news the US is moving to rebuild strategic supplies sold off to dampen prices last year. While less direct, news that Ukraine plans to target all Russian ships and ports with drone attacks and recent broadening of the type of attacks on both sides of the battle lines should put some premium into petroleum prices. Another likely catalyst behind the extending strength in crude oil prices is the return of fund money which is probably stoked further by this week’s upside breakout in prices. Furthermore, reports of hard declines in tanker rates because least partially confirms Russian compliance to its output reductions. EIA crude stocks rose 5.851 million barrels and are 13.612 million barrels above year ago levels.
NATURAL GAS
Once again, the sharp range up extension in natural gas seems out of place with US cooling demand more seasonal than extreme, Europe holding large inventories relative to seasonal levels and given signs of reduced flow to US export terminals. On the other hand, we would not rule out further gains from European strategic supply rebuilding, concerns of lost supply from strikes at LNG facilities in Australia and from lower global production resulting from a wave of maintenance. Unfortunately for the bull camp, once European inventories return to capacity well ahead of the start of heating season, natural gas prices could be vulnerable to significant corrective action. Another element behind the rally in natural gas this week is two straight weeks of smaller than anticipated weekly injections. While the charts favor the bull case with the upside breakout extension yesterday, finding bullish fundamentals capable of projecting prices even is difficult at best. A portion of this week’s buying could be from speculation on seasonal pickup in hurricane activity or from hot US East Coast temperatures.
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