Written Commentary
NATURAL GAS
We see the natural gas market in a sideways to lower track with US supplies likely to build and demand likely to remain extremely low. In retrospect, America has clearly entered the injection season and without a series of small injections and consistent near-capacity exports, we see little chance of a reversal to the upside. In fact, the net spec and fund short in natural gas remains moderate, leaving the market capable of ongoing short selling. In a minimally supportive development, the Russian national gas company Gazprom has reportedly shutdown “dozens” of gas wells due to regional flooding.
CRUDE OIL
With Friday’s major range up move, and very poor close, combined with a downside breakout and a new low for the month of April this morning, the bear camp has confirmed it controls the crude oil market to start the new trading week. Apparently, the Israeli retaliation was seemingly absorbed by Iran and with Israel seemingly temporarily satiated with their attacks, fear of a disruption of Middle East supply looks to abate temporarily. In fact, with Friday’s sharp range up and definitive reversal that could usher in a temporary extension of downside volatility. However, the markets should not rule out a Middle East reaction to the US passage of a $95 billion of an aid package to Ukraine and Israel as that could prompt a t backlash from those supporting the Palestinians. Looking to the internal fundamental setup in oil this week, the markets carry over residual energy demand concerns and longer-term bearishness from an increase in the US rig operating count. In a slightly positive overnight development, a report that global crude oil in floating storage fell by 18% on the week could rekindle talk that global oil markets will remain in deficit. Fortunately for the bull camp, the net spec and fund long in crude oil was relatively modest prior to the markets slide from the report of $3.76 per barrel and that could bring the speculative long down and reduce the prospect of waves of stop loss selling. The trade should see an increase in seasonal demand but will need to see evidence of a Chinese recovery and or fresh fighting in the Middle East to throw off the current liquidation bias.
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