Written Commentary
CRUDE OIL
With crude oil prices failing to respond positively to several bullish overnight developments, the bias in the market remains down. In fact, the trade has discounted the highest Indian March crude oil import reading in nearly a year and more importantly has discounted chatter of Chinese support for its export industry. However, solid buying by Indian refiners is also resulting in a ramping up of India product exports and the API yesterday posted a patently bearish weekly crude stock gain of 6 million barrels yesterday afternoon. Additional bearish developments include a Bloomberg story indicating that the Russian price cap has been violated throughout Asia, the potential for a lifting of US sanctions on Venezuela (if they return to democracy) and continued declines in refinery margins which should result in reduced refiner buying directly ahead. With June crude oil posting a lower low yesterday after several days of sideways consolidation, it appears the oversold condition has been balanced and more technical related selling is likely. Reports of a backup of crude oil tankers off Nigeria has increased the backlog to 12 days and that might have a supportive impact if the backlog grows precipitously. On the other hand, US seasonal implied gasoline demand should begin to rise consistently and typically continues to rise until the first week of July or to the 3rd week of August if comparing longer-term average patterns.
NATURAL GAS
We expect natural gas prices to continue to track sideways and consolidate within a range defined as $2.53 and $2.30. However, European supply fears continue to fall, UK gas prices failed to strengthen in the face of a cold wave, and European buyers look to become more selective in filling strategic reserves for next winter. On the other hand, extremely hot temperatures in Spain could also foster chatter that the European summer cooling season could make refilling storage quickly difficult. In the end, softening economic data indicates moderate softness in industrial natural gas use in the US and without persistent headlines touting record US exports, we see June natural gas prices touching $2.31 before breaking out above $2.543.
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