Written Commentary
NATURAL GAS
May natural gas prices pushed marginally higher during the initial morning hours and remain trapped inside a trading range. The market sold off early in yesterday’s session and cracked below the $1.80 level in the process. Over the last four weeks, natural gas storage has declined 138 bcf. In addition to a more than ample storage surplus, the bear camp looks to an extended period of reduced LNG export flows out of the Freeport LNG terminal in Texas hanging over the market. Meanwhile, US weather forecasts into early April remain mostly colder than normal, but for now that doesn’t appear enough to move the heat-related demand needle. A measure of underlying support comes from reduced US output as a few energy companies are delaying well completions and cutting back on other drilling activities. There is also potential for a boost in Asian demand for LNG as natural gas prices hover near multi-year lows.
CRUDE OIL
Overnight weakness in WTI came from recent strength in the US dollar, but WTI has managed to hold above yesterday’s low of $80.30 and bounce into the US opening. It’s possible that seeing favorable economic readings on German business conditions and UK retail sales offer support. The crude oil market also draws support on reports that the US government is looking to purchase 1.5 million barrels of sour crude as it continues to replenish the Strategic Petroleum Reserves, and that combined with an already tight US supply dynamic supports the bull camp. The tightening oil supply backdrop is fueling further backwardation in WTI calendar spreads. Tightening supply concern comes following OPEC+’s production cuts, with reduced Iranian and Saudi Arabian oil export flows coming into the market. In the meantime, the geopolitical risk premium could get more attention in today’s session and ahead of the weekend following reports that Russia launched over 150 missile and drone attacks overnight on Ukrainian energy infrastructure. This also comes as US officials urged Ukraine to halt strikes on Russian refinery operations. Also, of interest in today’s session will be whether there is forward progress on a ceasefire in Gaza, with ongoing talks taking place in Qatar.
PRODUCT MARKET FUNDAMENTALS:
May RBOB gasoline prices managed to recover from overnight weakness that held above yesterday’s low and rally into the US opening. There is concern in the gasoline market surrounding the return of BP’s Whiting refinery and potential boost in short term gasoline and distillate supplies. The bulls point to a tight US gasoline supply dynamic with EIA inventory gasoline inventories at their lowest levels in three months and 5.635 million barrels below the five-year average. However, there is some concern over gasoline demand, with the latest four-week average hovering below the psychological 9.0 million barrel per day mark. Meanwhile, May ULSD showed downside leadership in the crude oil complex in recent sessions, with added weakness coming from an unexpected build in US distillate supplies last week.
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