Written Commentary
NATURAL GAS
Even though the July natural gas contract rejected the $2.50 level, closed positive last Friday, and has extended the upside this morning, bearish overall fundamentals remain in place. In fact, the prospect of improved US gas demand following the strong US payroll report should be heavily offset by Asian natural gas prices failing at a psychological important $10 level (a 2-year low) and by reports that European buyers are backing away because of more than adequate strategic supply. Furthermore, European buyers now see an opportunity to buy at much lower levels and that could become a self-fulfilling prophecy. Adding to the downward fundamental track are ever-expanding US natural gas export pattern. Last month the US exported a record 8.1 million tons of LNG which is a 16% gain from year ago figures. In fact, the US April LNG export was the largest of any nation ever. The path of least resistance remains down with soft seasonal demand to continue along with reduced European interest in refilling their storage.
CRUDE OIL
Given the aggressive upside extension of last week’s significant recovery, suggestions that technical oversold conditions are fueling the rally are falling by the wayside. Obviously, the much better-than-expected US jobs report scores a major hit against fears of deteriorating energy demand, even though the ultra-strong US jobs data questions the US Fed’s ability to “pause”. Perhaps the trade is emboldened by a 16% decline in crude oil in global floating storage last week and it appears that aggressive selling off the Silicon Valley Bank threat is now resulting in a surprising level of stop loss buying. In a minimally supportive overnight development, Taiwan reported a 19.1% increase in April crude oil imports which has served to blunt evidence of softer spring demand for fuel. In retrospect, July crude oil prices likely posted a major value zone at the lows last week with the gains on Friday certainly partly the result of the strong US payroll report. However, we would not label global energy demand as a positive force for prices yet, especially with Indian and Chinese demand signals recently tapering off. A 3 million barrel per day reduction in Asian imports by just 2 countries is very bearish for prices but the trade sees the setback in purchases as temporary.
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