Written Commentary
CRUDE OIL
Despite several bullish developments overnight crude oil prices remain near this week’s spike low. In addition to reports of India and China bidding against each other for Middle East crude oil, the markets have also seen signs of a significant jump in Indian diesel/fuel sales and there are reports that shipping costs have started to rise sharply reportedly because of renewed Chinese oil tanker demand. Furthermore, the trade discounted declines in this week’s crude oil inventory reports, extreme supply tightness on the East Coast and French refinery strikes which should create a potential for increased US fuel exports. From a shorter-term market mechanics perspective option positioning has shifted significantly in favor of the WTI bear camp and Bloomberg reports overnight produced a 2nd straight soft Chinese traffic reading.
PRODUCT MARKET
Unfortunately for the bull camp, US EIA implied gasoline and distillate demand readings remain significantly below year ago levels with distillate and diesel inventories this week posting modest inflows to inventories. On the other hand, EIA gasoline inventories declined for the 3rd straight week in a row and continue to maintain a year-over-year deficit of 6.5 million barrels. Unfortunately for the bull camp recent traffic congestion readings from China continue to show softening from the high levels last month, but very strong US and Indian fuel demand readings continue to balance slower Chinese demand. However, EIA distillate inventories have reached 12-month highs and distillate demand has run significantly below year ago levels every week this year except for the first reading of the year.
NATURAL GAS
Even though the natural gas market has managed to build a shelf of consolidation support at $2.50, the setback from the March high has already violated first and 2nd retracement levels from the February and March rally, targeting a further retracement to $2.4621. According to Bloomberg, aggressive South Asian LNG buying could support prices which could shift intense market focus on European demand. However, Asian buyers appear to be waiting for further corrective action to secure supply. It should be noted that analysts and oil industry experts are beginning to look ahead to summer cooling prospects which in turn should increase the focus on inventories relative to year ago and seasonal levels.
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