Written Commentary
NATURAL GAS
With a developing pattern of higher lows and higher highs, the natural gas market has a very modest bullish chart set up. However, a large portion of the bull case is heavily reliant on a return to much above normal temperatures in the southern 3rd of the US running from the West Coast to the East Coast. It should also be noted an extreme heat warning has been issued in the UK by the Health Security Agency. Furthermore, buying for European strategic reserve rebuilding is also likely to provide near term support for prices. While the natural gas market did not see an impact from the sabotage destruction of a Russian ammonia pipeline pushing supply into Ukraine, that development combined with intense fighting between Russia and Ukraine and given Russian indications the Black Sea grain corridor deal will not be extended could be a precursor to Russia shutting off or slowing down LNG gas flow under the Ukraine. This week’s EIA working gas in storage inventory report showed an injection of 104 BCF which resulted in a slight reduction in the surplus inventories to 5-year average inventories from 16.6% last week to 16.1% this week. With the rate of gain in natural gas prices this week, very modest, downside corrective action might also be modest especially with the potential for a return of extremely hot temperatures in the southwestern US.
CRUDE OIL
In retrospect, the crude oil market appears to have made some form of technical and fundamental top earlier this week. On the other hand, it also appears as if the market has found a solid value zone with the sharp range down failure through $70.00 rejected in four of the last six trading sessions. However, with crude oil forging a 3-day high early yesterday, abruptly reversing and at times plunging more than $4 per barrel, buyers are likely to stand back and wait for headline confirmation global demand continues to grow. Additional negative overnight headlines indicate Chinese on shore crude supply has hit a 2-year high and that should serve to thicken resistance in crude oil at the middle of the current trading range around $72.50. However, with a trade below $69.46, the net spec and fund long position in crude oil could reach the lowest levels since 2016 and that could be considered a sign fears of softening energy demand has been fully priced by the spec trade. From a short-term perspective, spread action in WTI has shifted in favor of the bear camp and yesterday’s downside action suggests the crude oil market was not supported by a reduction in US rate hike chances, by a weaker dollar and from lingering hope of a Chinese stimulus program. Fortunately for the bull camp, according to Bloomberg, Chinese traffic levels continue to be strong, India registered very strong diesel fuel demand this week and this week’s EIA implied gasoline demand reading was solid again at 9.2 million barrels per day.
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