Written Commentary
CRUDE OIL
While crude oil prices remain just under 5-day highs in the early going today, overnight developments are likely to temporarily thicken resistance and discourage some buyers. In addition to unfolding weakness in many international cash crude oil grades, the market should be undermined from signs of cooperation between the US and Iran, a decline of Indian first half of June gasoline sales, and strong US gasoline imports into New York. However, bullish overnight developments are also plentiful with speculation of further OPEC+ cuts, significant strength in gasoline cracks, positive technical influence from the potential for the biggest weekly gain in 6-weeks, an increase in Kremlin oil taxes thought to reduce Russian output capacity and macroeconomic optimism flowing from equities. Even though energy prices failed to mount noted gains following a massive, compacted collapse earlier this month, big picture macroeconomic conditions have improved which in turn should help repair recently damaged global energy demand expectations. Part of the improving demand condition is likely generated from economic optimism flowing from surging equity prices and from sharp gains in supertanker rates (sign of increased shipping demand). Furthermore, surging crack margins, significant New York gasoline imports (perhaps for strong summer demand needs) and 3rd straight week of declines in Singapore fuel stockpiles paint a picture of a positive demand environment.
NATURAL GAS
While classic supply and demand fundamentals have not significantly shifted in favor of the bull camp, seeing another new high for the move after yesterday’s sharp range up action indicates some moderation of the bear case is underway. Apparently, the markets see signs of lower US production shifting the supply and demand balance toward tightening, or in the case of Natural gas a narrowing of the surplus. While we are skeptical that a below range of expectations weekly injection to EIA working gas in storage is playing a significant role in the aggressive range up rally and highest trade since May 25th the report was bullish. Over the last four weeks, natural gas storage has increased 394 bcf. It is possible that the natural gas trade like the corn and soybean markets have embraced forecasts of a return to above average temperatures next week in the midsection of the US. A countervailing force to this morning’s early gain is a 5.2% year-over-year gain in Chinese May LPG production and another Russian deal with Uzbekistan.
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