Written Commentary
CRUDE OIL
Clearly, the massive range up rally in petroleum prices last week was attributable to the increase in tensions in the Middle East as the trade last week saw intelligence chatter suggesting Iran would strike Israel sooner rather than later. However, with the Israeli military pulling back some troops in southern Gaza and hope last week that Egypt could broker a solution, a corrective setback is possible. However, the peace deal has failed and global crude oil in floating storage fell by 17% versus last week’s reading giving the bull camp fresh tight supply hope. The bull camp should also be cheered by news of record US TSA traveler figures and from reports of record jet fuel demand. In the near-term, the Middle East issues look to be supportive while the domestic US condition seems to be shifting bearish with EIA crude oil stocks building by 6.3 million barrels over the last two weeks and the deficit to year ago inventories cut in half from three weeks ago. Even though the April rallies have been forged on rising trading volume and higher open interest, the trade appears to be becoming somewhat price sensitive.
PRODUCT MARKET FUNDAMENTALS
In addition to further strength in crude oil, the gasoline market is indirectly supported by an outage at a Russian refinery, a very strong US jobs report and by record US TSA checkpoint counts. While the significant jump in US refinery operating rate since early February has not built up US inventories yet, traders should watch for that news ahead. Unfortunately for the bull camp, the gasoline market has been the most overbought energy market from a net spec and fund perspective.
NATURAL GAS
Even though natural gas has periodically managed to rally in what appears to be against definitively bearish fundamental information, the overall trend remains down. Perhaps the most bearish issue for the natural gas market is very high European seasonal adjusted inventories as that has shifted excess supply to Asia which creates competition for prices in the region. Furthermore, Russian gas flow continues to maintain a uniform pace through the Ukraine, the northern hemisphere shoulder season has begun, and we expect weekly inventory reports to settle into a pattern of injections. The latest COT positioning report showed the noncommercial and nonreportable net long positioning is likely the largest spec long since January of 2023. The path of least resistance remains down unless something very surprising surfaces.
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