Written Commentary
CRUDE OIL
While the April crude oil contract waffled around both sides of unchanged yesterday, the market showed signs of revisiting the February high with a three-day upside breakout. Therefore, we are surprised that crude oil prices are only minimally lower this morning given the massive jump in API crude oil stocks of 8.43 million barrels from yesterday afternoon. Furthermore, very modest weakness in the wake of prospects of a peace deal/cease-fire in Gaza could have prompted aggressive selling off ideas that news would reduce threats against supply. On the other hand, the Yemeni terrorists are unlikely to relent as the attacks on shipping are boosting the notoriety of the terrorist group in Yemen which in turn draws financing. While the significant API crude stocks inflow increases the prospect of a larger than expected EIA crude oil stock inflow today, significant strength in oil spreads partially confirms expectations of tightening future supply which in turn probably contributed to the February rally. Nonetheless, US EIA crude oil stocks are likely to build for the fifth week in a row and we suspect some bulls will back away because of talk a cease-fire deal.
NATURAL GAS
While the fundamentals in natural gas remain very bearish, a return of more seasonal US temperatures, and news that Russia has redirected LNG shipments away from the Red Sea, provides minimal support against news that US LPG exports in the latest weekly report declined 12% from the prior week. Furthermore, LPG US exports over the last 30 days were 1.99 million barrel per day 2 million barrels per day last year. Unfortunately for the bull camp, a temporary return to normal seasonal temperatures in the US is very unlikely to have a notable impact on a very oversupplied market. Even demand news favors the bear camp with Bloomberg overnight indicating lower 48 gas production yesterday increased while lower 48 total gas demand declined. Unfortunately for the bull camp the net spec and fund short in natural gas remains very modest and therefore the market is unlikely to run out of sellers.
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