Written Commentary
CRUDE OIL
While the May crude oil contract is trading higher today the market has forged a second straight lower high. However, prices should be underpinned from a hedge fund forecast predicting global oil supplies will be “extremely tight” in the second half of this year. Furthermore, Morgan Stanley has raised its second quarter Brent oil price forecast to $92.00 and a new Chinese refinery has received an 8.3 million ton quota to import oil which equates to roughly 167,000 barrels per day. Yet another force contributing to the bull case is a private forecast from a commodity conference in Switzerland that US production is unlike to reach the 400,000 barrel per day growth rate previously predicted by the markets. This week’s Reuters poll projects EIA crude in storage to increase by 2.4 million barrels and expects another increase in the US refinery operating rate of 0.5%. In addition to the petroleum markets reaching significant short-term overbought status, reports of Israeli troop withdrawals tempers Middle East supply concerns even if the Egyptians failed to broker a peace deal. On the other hand, there are traders who think extremely low natural gas prices are already serving to reduce oil exploration, pressuring shale oil production and other petroleum supply dependent on the added of revenues from natural gas.
NATURAL GAS
After exhibiting surprising volatility yesterday by posting a five-day low and aggressively rejecting that breakout and in turn recovering with a gain of $0.10 from the low this morning, the bears should be on edge. However, the trade overnight was presented with an estimate indicating a decline of LNG on global floating storage of 3.8%. Countervailing the lower global floating supply news is word that India may be temporarily “covered” for upcoming LNG needs. This week’s Reuters poll projects EIA natural gas in storage to post a change between a draw of nine BCF and an injection of 14 BCF. From a longer-term perspective, there are discussions that overall oil production in US could begin to decline as ultracheap natural gas prices have reduced the profitability of some petroleum production. In a very supportive longer-term development the market overnight was presented with a forecast that US power generators this year will utilize the least amount of coal ever.
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