Written Commentary
CRUDE OIL
With a slightly improved view toward the global economy, Saudi Arabia and Russia attempting to “talk prices higher” with praise of OPEC+ cooperation and several forecasts calling for $90 oil because of the large Saudi production cut, more gains are possible in crude oil today. The positive view in the market today is somewhat surprising given generally negative takeaways from this week’s API and EIA reports. While the US refinery operating rate reached up to the highest level since August 2019, that surge in demand for US physical crude was offset by the EIA indicating the highest US crude oil output since April 2020. It should be noted that instead of an increase in EIA crude oil inventories this week, inventories declined modestly. Bearish news from the weekly EIA report came from large builds in EIA gasoline stocks of 2.7 million barrels, a 5-million-barrel gain in distillates and a 5.2-million-barrel build in diesel stocks. In fact, wrapping all the ingredients together, a very strong refinery operating rate and significant jumps in product inventories the upside could be slowed by the prospect supply is beginning to outstrip demand. However, we view this week’s implied gasoline demand reading of 9.21 million barrels per day as slightly supportive as the trend of strong demand is extended and that is significantly enhanced by China May crude oil imports posting the 3rd highest reading on record.
NATURAL GAS
We see the current natural gas trade in a stalemate between long-term bullish prospects and cheap prices, ongoing oversupply and softer than normal seasonal demand leave the bear camp with an edge. However, the US temperature forecast from today through June 15th shows significantly hotter than expected temperatures in the Gulf states reaching up into Kansas, Arkansas, and North Carolina. Further out, the 15th through the 23rd forecasts show what is likely to be record temperatures along the Southwest quarter of the US. On the other hand, the lack of a significant price reaction to the hot intermediate maps suggests traders fear another triple digit injection today. In the end, a lack of a significant upward action in prices given the forecast out to June 23rd suggests the trade remains convinced the natural gas market will remain flush with supply.
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