Written Commentary
CRUDE OIL
Despite renewed rate hike fears from Europe, signs of a slight reduction in Chinese road congestion and higher Russian Urals Western port exports to China, April crude oil this morning has posted a 5-day high. However, with month-end today and prices off sharply from midmonth, a portion of today’s early gains might be classic book squaring of short positions. On the other hand, reports that Saudi Arabia might raise prices to Asian customers, fear of a Russian production cut back next month and signs that some Indian banks are beginning to “check contract prices on Russian oil imports” should lend fresh support to WTI prices which have reached the strongest levels of the year against Brent crude oil. News that Russia had halted the flow of crude oil through a pipeline in Poland also provide crude oil and the products with early support, but there were reports later in the day yesterday that the Druzhba pipeline was being used to ship Kazakh oil to Germany. On the other hand, Bloomberg reports Russian gas oil shipments to India have reached a record despite the global sanction effort. This week’s Reuters poll of EIA crude oil inventories predict a minimal rise of 400,000 barrels with a slight decline in refinery runs. If matched by the EIA report, it would be a ninth weekly increase in a row and put US crude oil stocks at their highest levels since mid-May.
NATURAL GAS
Slightly favorable temperatures, a measure of month end short covering and lingering optimism from the restart of Freeport export flows has helped April natural gas prices hold near yesterday’s strong range up and impressive close. Signs that US export flow is expanding is partially confirmed by softening Asian prices at the same time the market is garnering lift from reports that French storage levels have fallen to 44% of capacity. Other supportive developments for gas are statistics reporting US utility purchasing of coal have declined sharply and news that floating inventories of LNG declined by 13% versus last week and are now at the lowest levels in 10 months! Even though COT positioning reports continue to be delayed, figures for the week ending January 31st showed a large net spec and fund short of 134,321 contracts and given the post report slide of $0.63, the net spec and fund short likely reached the largest level of the pandemic era. Furthermore, US dry gas production has seen a slight decline since the end of January, and several major firms have cut back on the number of rigs used for gas exploration because of extremely low prices. As a result, it is unlikely that US dry gas production will reach a new record output total anytime soon. The bias is up but traders should maintain healthy suspicion of the bull case.
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