Written Commentary
CRUDE OIL
While crude oil is seeing support this morning from renewed talk of an imminent Iranian retaliation for the Israeli attack in Syria and the trade overnight saw news that Mexican exports of oil to the US fell to the lowest level of modern trade, bullish news will be somewhat countervailed by the jump in US EIA oil inventories yesterday. In fact, overnight European crude oil stocks in March increased by 1.4% and European Product inventories in March also increased. Indirect bearish demand news also surfaced overnight following a precipitously weak Chinese CPI reading and from a Bloomberg study showing Chinese traffic slowed for the first time since February. Yet another drag on the market are reports that Russian oil trading activity appears to be well above levels commensurate with promised production restraint. However, bullish speculative interest continues to elevate in Brent crude calls and lofty price targets have been floated from analysts again overnight. In addition to a much larger than expected inflow to EIA crude oil inventories yesterday, the year-over-year deficit in US crude oil inventories has now dropped by 66% over the last four weeks. In the end, bullish sentiment continues to present in the market despite a measure of Chinese energy demand concerns from a precipitous drop in Chinese inflation and a larger than expected inflow of crude oil to EIA inventories.
NATURAL GAS
Expectations from Reuters call for EIA natural gas inventories to post within a range of a nine BCF withdrawal to a 14 BCF injection. In our opinion, with a second injection in the last three weeks today, the June gas contract should be vulnerable to a retest of $2.00. Certainly, prices are supported from normal maintenance in North Sea production, from an unexpected North Sea outage and from reports of bargain hunting. However, the overhang of supply remains daunting. In fact, Asian LNG prices have continued to rise despite the reversal in US prices over the last 24-hours and the trade thinks that will dampen Asian demand.
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