Written Commentary
CRUDE OIL
Despite the launch of the Israeli offensive, a trade almost exclusively in positive territory yesterday, a Reuters poll predicting a 1.2 million barrel decline in EIA crude oil stocks, and a jump in Indian April fuel consumption, oil prices remain near two-month lows. However, word of a US/Saudi Arabia defense agreement has apparently reduced concerns of major supply disruptions in the Middle East and was reportedly the source of the massive early May washout in prices. Sentiment is so bearish that the trade has discounted predictions from Goldman that OPEC+ production restraint will extend beyond the June expiration. In a sign of increased volatility ahead, the CME has recorded demand for weekly oil options. News that Russia has instructed its military to begin practicing the use of tactical nuclear missiles could be a demand negative or a supply positive. If Russia shows signs of using tactical nuclear weapons, that will likely result in many countries complying with sanctions and not buying Russian oil. On the other hand, anxiety of the potential for World War III would be a demand crushing issue. From a technical perspective, the crude oil spec and fund long has been moderated but without signs of sensitivity to the launch of the anticipated Israeli attack, the bear camp retains the edge.
NATURAL GAS
The natural gas market surprised the trade with the strong range up move yesterday, but the rally was supported by steady Asian buying and perhaps accentuated by several “talking heads” on CNBC Monday promoting natural gas as a very important bridge to cleaner energy. However, overnight there were reports that Asian buyers stepped back as prices approached $11.00 in the region. On the other hand, US demand news has shifted positive with a troubled Texas export facility showing signs of expanding export flows. With the natural gas market heavily net spec and fund short, the buying yesterday likely sparked by noted technical stop loss buying. Furthermore, Bloomberg overnight carried a forecast that US cooling degree days would run 11 degrees above normal this week. It is also possible that Russian intentions to practice deployment of tactical nuclear weapons could result in a halt of European purchases of pipeline gas from Russia.
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