Written Commentary
CRUDE OIL
The crude oil market was lifted yesterday by a surprise inflow and trend busting decline in EIA crude oil stocks as a projected 900,000 barrel inventory inflow estimate crossed up the trade with a moderate decline. We suspect the surprise drawdown in US crude oil inventories is mainly the result of the US refinery operating rate jumping 1.9% on a week over week basis thereby increasing demand for physical US crude. Furthermore, with a year-over-year deficit in EIA crude oil stocks expanded to 33 million barrels this week and the refinery operating rate now up 6.2% from one month ago that should mean a noted pickup in the pace of US crude oil buying for refinery consumption. Another fresh bullish development came from the IEA predicting a tighter 2024 oil market. However, the EIA did raise its US production forecast to 13.19 million barrels per day up from the prior estimate of 13.1 million barrels per day and that is a major offset to doubt over the actual amount of actual OPEC+ production restraint. In fact, OPEC continues to debate with Iraq which they contend continues to produce 200,000 barrels per day over its quota. In yet another limiting supply side story, this week’s private estimates pegged crude oil storage in key European facilities to have increased by 0.7%. However, the most supportive issue going forward is the emergence of a pattern of Ukrainian drone attacks on key Russian refineries which reduces the prospect of product exports from Russia even further.
NATURAL GAS
As we have been indicating all week long, we see April natural gas prices headed back to fresh contract lows. Weather forecasts for the US and Europe into the end of the month are patently bearish with temperatures at levels normally seen in the late shoulder season between heating and cooling demand. Trade forecasts are calling for EIA natural gas storage to have a minimal weekly decline which would still have storage levels more than 35% above their 5-year average. While there has likely been a rapid escalation of net spec and fund selling this week, the last net spec and fund short position was only 98,765 contracts and therefore the market retains significant selling capacity.
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