Written Commentary
CRUDE OIL
While new contract highs in crude oil this morning are partially the result of fresh trend signals from the charts, the energy markets are clearly emboldened by comments from the UAE energy minister who indicated “the situation is not encouraging when it comes to quantities of crude oil that OPEC plus can bring to the market”. While there have been many stories confirming ongoing buying of Russian crude oil by India and China, there are also signs that Non-Russian supply is being consumed at much faster rates than in the past. For instance, the UAE has reportedly supplied 32.1% of Japan’s crude oil needs in April, with the US also garnering significant market share from Russia over the last month. On the other hand, those seeking to fill the void of restricted Russian supply, are fighting what the Chinese national petroleum Company suggested is a $40 per barrel Russian discount to world prices.
While we think the overall bull case will remain in place in gasoline, several developments cast doubt on the market’s ability to maintain strong upside action in the near term. In addition to the significant short-term overbought condition on the charts, the trade is aware of the potential for a significant increase in product supply flow to ARA storage terminals in the weeks ahead. The potential for a jump in European product supplies is the result of US Census Bureau figures confirming the Dutch as the top buyer of US crude oil in April. The API survey said that US gasoline stocks had a weekly increase of 1.821 million barrels, which was a larger increase than market expectations.
NATURAL GAS
With a fresh contract high posted yesterday, forged in the face of downward revisions in EIA 2022 US natural gas consumption, the bull camp retains an edge. On the other hand, the EIA also projected 2022 US dry natural gas production to be lower than in a previous monthly forecast. However, EIA changes in forecast for consumption in production were minimal. It should be noted that the lower EIA 2022 gas consumption forecast still produced record demand. This week’s Reuters poll projects EIA storage of natural gas to increase by 87 BCF to 109 BCF. It goes without saying that record Texas power use for the month of June (already) and the expectation for a string of new record power consumption readings ahead provides a strong demand base for the bull camp.
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