Written Commentary
CRUDE OIL
Despite a modest risk on vibe, a softer US dollar, predictions of $136 oil if China slows purchases of Russian oil, the market should have respected chart support levels. However, further gains in US and Middle East crude oil prices, and the official EU embargo of Russian oil might have left the markets overdone. The energy markets could be undermined by suggestions that OPEC Plus would exempt Russia from its production restrictions. However, according to Bloomberg News, crude oil exports in May dropped by more than 700,000 barrels per day (according to tanker tracking) and the world’s top producers, Saudi Arabia and Russia moved less crude oil. Other supportive developments this week include another smaller than allowed monthly increase in OPEC crude output of 130,000 barrels per day, and an increase in tanker rates.
Over the last two trading sessions, the product markets have clearly outperformed the crude oil market on the upside. While crude oil prices failed to post fresh contract highs Wednesday and have extended the downside this morning, RBOB posted fresh contract and all-time highs yesterday and are holding up better than crude oil today! This week’s Reuters poll projects gasoline stocks to increase by a minimal 300,000 barrels and project a slight increase in the US refinery operating rate. The API survey said that US gasoline stocks fell by 256,000 barrels which contrasted with market expectations for a weekly increase. We suspect the gasoline market was lifted by the end of the lockdown of Shanghai, especially with China exporting excess fuel over the last month as their domestic demand contracted.
NATURAL GAS
With July natural gas yesterday spending the entire trading session in positive territory, the spike down to $8.118 becomes a key support point today. While EIA natural gas storage readings are still in the injection season, and this week’s Reuters poll projects the weekly injection within a range of 78 BCF and 91 BCF, domestic demand for US natural gas should begin to track higher and began to lower inventories relative to 5-year average storage levels. It should be noted that US LNG exports in the first quarter jumped by 87% which highlights very strong international demand for US gas. Furthermore, reports overnight have several LNG tankers moving toward the UK and Europe.
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