Written Commentary
CRUDE OIL
The charts in the May crude oil contract broke down overnight with the lowest trade since March 17th indicating a continued extraction of bullish sentiment. Clearly, seeing the US announcing a plan (the largest ever) to release 1 million barrels per day from its Strategic Petroleum Reserve “for several months” is a negative development for crude oil prices. However, analysts suggest the aggressive release of strategic oil supply is likely to make it less likely OPEC and/or OPEC Plus will increase their output markedly.
With Russia and China moving to reduce refinery runs because of building domestic supplies and from fears of softening demand, the recent jump in the US refinery operating rate is partially countervailed. Unfortunately for the bull camp, global traffic congestion models confirm softening demand outside of the US, and some economists are forecasting less seasonal demand improvement for gasoline because of punishing pump prices. However, China and Russia are critical product exporters, and that supply will be missed. Furthermore, Indian fuel sales reportedly jumped last month off improved demand and signs of hoarding.
NATURAL GAS
It is not surprising to see a measure of technical selling this morning given a desire to bank monthly and quarterly profits on long positions. However, the gas market should be supported because of a reversal of flow in the Russian pipeline in Europe and from talk of the purchase of 2 US LNG cargoes. Cooler weather in the US is another minor supportive development. However, like many other physical commodity markets, the gas market is facing softening Chinese gas demand prospects.
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