Written Commentary
CRUDE OIL
With continued deterioration in global economic sentiment this morning, the additional downside extension in energy prices today is justified and we expect further economic deterioration evidence from the US today to pressure Crude oil prices even lower. In fact, with soft US data again today, economic data this week will be a bearish sweep which in turn has sparked another wave of recession predictions from the talking heads. It also appears as if significant downside momentum in gasoline and diesel prices is adding to the vulnerability of crude oil prices. While news that Russia saw record crude sales to China in March might suggest strong Chinese demand, that news is not fully supportive as non-Russian supply likely lost market share. On the other hand, overnight reports have Indian refining demand for crude oil expanding significantly last month which is not surprising given that India is one of the fastest-growing major economies in the world. In short, the energy markets are clearly concerned about slumping demand outside of China and India as consumption by those two countries remains very strong. However, if the trade is factoring in the increase in Chinese crude oil inventories, that could be misguided as rising Chinese crude oil inventories in the face of the highest refinery throughput in 21 months is probably the result of the Chinese government directing oil companies to build crude reserves and work to build product inventories to supply a recovering economy. On the other hand, some traders feel that a moderate portion of the increase in Chinese oil inventories is flowing into less liquid strategic holdings. In conclusion, without a 180-degree shift in global economic expectations or a surprise supply glitch, more declines are expected.
NATURAL GAS
Fortunately for the bull camp, the weekly EIA injection into working gas in storage came in below the top of the range of expectations. Unfortunately for the bull camp, the surplus of gas in working storage increased to a 3-week high above 20%. Additional negative supply news overnight came from Asia where burgeoning LNG supplies have resulted in LNG floating storage levels rising above 5-year seasonal high levels. From the weather front, a US temperature warm up is ahead and with the 10-day look reaching into May, the prospect of sustained much below normal temperatures and a significant jump in heating consumption is declining sharply.
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