Written Commentary
CRUDE OIL
While it is surprising to see energy prices tracking lower early today in the face of an extension of improved equity market psychology, the bull case should be stoked by Bank of America research projecting Brent crude prices “well above” $150 if Russian exports contract sharply. In our opinion, an EU deal on Russian energy exports is likely next week, but the trade might be disappointed with restrictions narrower than a full ban. Rumors that the EU might allow ongoing pipeline flow toward Hungary to get an embargo agreement are credible. As usual, obtaining consensus and compliance among EU members is unlikely. Prevailing bullish psychology is apparent from market chatter projecting surging summer demand and even higher prices.
Surprising gasoline prices did not retest this week’s highs early on as seen in crude oil and diesel prices overnight especially with surging North American summer demand expectations. While not a major assist to global gasoline consumption, it should be noted that several countries have moved to reduce or eliminate gas taxes and or have provided subsidies to help consumers absorb high prices. However, seeing the highest US refinery operating rate since December 2019 should result in higher gasoline output and a temporary build in gasoline stocks before summer demand absorbs the increased output.
NATURAL GAS
Natural gas forged its fourth straight higher high yesterday and forged the rally on the back of a minimally smaller than expected weekly US inventory injection and that might have signaled over extended bullish psychology. Furthermore, short-term technical readings were overwound, and market chatter projects Chinese LNG imports might show the first significant drop off this year.
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