Written Commentary
CRUDE OIL
A slight corrective tone early today is likely the result of J.P. Morgan predictions overnight that Russia will be able to maintain exports at the current pace through June despite their 500,000 barrel per day production cut from their share of the production restraint scheme. Other minimal negatives include reports that Hamas has floated a cease-fire proposal, a slight 1% year-over-year decline in January Indian refiner activity and a prediction yesterday from the EIA that non-OPEC+ production will fuel global production growth this year. However, the cease-fire proposal seems primarily focused on a prisoner swap and not necessarily to allow for peace negotiations. On the other hand, potential support from Middle East events remains in place with the head of the Iranian foreign espionage and paramilitary force visiting Beirut to discuss the threat of Israel expanding its attacks to Lebanon. At least in the early going today, bullish resiliency has moderated but remains in place. In addition to Middle East supply threats, it seems like the bull camp is being inspired by classic supply and demand issues. It should be noted that OPEC sees demand jumping much more than the IEA with Reuters pegging the difference in demand projections equal to 1% of total world consumption. However, macroeconomic headwinds will likely hold back crude after the prospects of a US rate cut in June were lowered again which sparked a sharp gain in the US dollar. Even though crude prices held ground in the wake of Russian oil minister promises of an increase in Russian oil exports, the markets are more concerned about recent Russian refinery shutdowns from Ukrainian drone attacks which could become a major impact on the world oil markets if Ukraine can continue to hit key oil infrastructure targets.
NATURAL GAS
Without a very surprising bullish development which catches the market totally off guard, we doubt the downward track in natural gas prices has run its course. Certainly, the withdrawal from inventories yesterday was above expectations of a withdrawal of three BCF, we see the market’s reaction to that news as dramatically overdone. In fact, supply side fundamentals worsened overall yesterday following the release of the weekly EIA working gas in storage report. Not only did the report show the smallest weekly draw of the winter season, but the surplus to five-year average inventory levels also expanded again and in turn should ratchet up bearishness toward summer contracts. We still see fresh contract lows ahead, with the recovery yesterday not justified by the argument that the weekly withdrawal was larger than expected.
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