Written Commentary
CRUDE OIL
Seeing crude oil prices remain in the lower quarter of a 35 day trading range this morning is not surprising given a measure of bullish and bearish fundamental overnight news. On the bull side of the ledger yesterday afternoon’s API crude oil stocks decline of 5.5 million barrels was a very significant bullish surprise and that news was magnified by reports of additional refinery damage in Russia from Ukrainian drone attacks. On the bear side of the ledger reports overnight are Russian seaborne crude exports reached the highest level of the year last week and that is compounded by EIA forecasts that US production gains will outpace OPEC production cuts! Furthermore, evidence that Iraq is producing 200,000 barrels per day more than its quota, highlights a lack of effectiveness from the production reduction scheme. Yet another bearish overnight development came from the weekly private forecast from Genscape indicating crude storage in ARA facilities increased by 0.7% on a week over week basis.
PRODUCT MARKETS
Clearly, the upside breakout in gasoline toward the March high today is justified by another attack on a Russian refinery, a larger than expected decline in weekly API gasoline inventories and moderating fear of restocking of gasoline inventories from the massive jump in the US refinery. We suspected the drone attack on a critical Russian refinery early this week provided the impetus for yesterday’s six-day high in gasoline prices and therefore today’s extension off another attack is also justified. With a recent Russian gasoline export ban, a potential loss in Russian fuel production from the missile attack and given an upcoming election, the Russian president will likely take aggressive action to limit product exports further.
NATURAL GAS
While there are reports that European buying for summer needs has picked up, that likely means supplies will quickly return to near capacity levels. Predictions are that current European gas storage is at 60% of capacity with only two weeks of the “official” heating season remaining. Apparently, the trade targets European crude in storage to be 90% by November 1st and that target could be easily achieved given the massive surplus of exportable supply in the US. In short, to stop or slow the downtrend in Natural gas will require widespread talk of a much hotter than expected northern hemisphere spring and summer.
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