Written Commentary
CRUDE OIL
While the last two weeks’ price action in crude oil seemed to indicate an unsteady balance in world supply and demand, many traders see supply tightening and demand continuing to see stepwise improvements. However, energy and commodity markets are likely to see big picture macroeconomic influences dominate prices early next week. Adding into the demand threat for US WTI supply is the impact of a surging US dollar on foreign buyers of US oil. Fortunately for the bull camp the markets expect strategic reserve buying from the US and India and perhaps from China which recently saw refiners dipping into domestic inventories. Apparently, 2.7 million barrels per day of daily Canadian oil sands production is in “very high” or “extreme” wildfire danger zones (according to Rystad Energy). It should also be noted that officials think a return to abnormally hot and dry conditions ahead will rekindle blazes, leaving the threat against Canadian supply in place into the weekend. Furthermore, evidence of increased Saudi crude oil exports for March and April were offset by projections that Saudi Arabian May exports will decline. Unfortunately for the bull camp strength in the dollar and a surge in energy demand concern from US debt issues are likely to remain a headwind for crude oil prices.
NATURAL GAS
While the natural gas market reportedly rallied from a smaller than expected storage build, we are skeptical of that view, especially with the surplus versus the 5-year average remaining inflated and near last week’s lofty surplus level. The weekly natural gas storage report showed an injection of 99 bcf. Total storage stands at 2,240 bcf, or 17.9% above the 5-year average. Over the last four weeks natural gas storage has increased 310 bcf. Going forward, the natural gas market should see residual support for threats against gas production in Canada and from extreme hot temperatures in southeast Asia and India. Certainly, an unusually hot forecast for the Western United States combined with above normal temperatures throughout large sections of the US through the middle of next week adds to yesterday’s upside chart breakout and could prompt additional stop loss buying. Certainly, the weekly injection yesterday was on the small side but surplus supplies relative to history are limiting and the potential for buyers to back off with prices nearing 3-week highs.
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