Written Commentary
NATURAL GAS
Surprisingly, the natural gas market managed to recover from early lows yesterday despite a much larger than expected weekly inflow to EIA working gas in storage inventories. The weekly natural gas storage report showed an injection of 92 bcf. Total storage stands at 2,425 bcf or 37.0% above the 5-year average. It should be noted that the surplus to the five-year average inventory level increased this week, which is the first increase since March 22nd. While the US will see pockets of below normal temperatures over the coming week, supplies remain overwhelming and late season heating demand is unlikely to be consequential. We see a greater probability of a test and failure of contract lows than a trade back to this week’s highs. However, a positive longer-term development surfaced overnight with suggestions that demand for US LNG is “booming” but that potential bottom making issue is tempered by the unreliability of US export terminals.
CRUDE OIL
While the energy markets slipped lower yesterday off ongoing Middle East calm and from a dip in global economic sentiment following evidence of residual inflation in the US, calm in the Middle East has been lost. In fact, with Israel intensifying airstrikes in southern Gaza and the international community warning of mass casualties, we suspect fresh incendiary comments from Iran and even more intense protests in support of Hamas around the world. It should be noted that the markets will be presented with the main US PCE report today, and therefore confirmation of hot inflation might not have as significant of an impact as the preliminary reading on Thursday. With the aid package for Ukraine, Israel, and Taiwan packaged with proposed sanctions on Iran, the US President might be hesitant to sign the bill as that could spike US gasoline prices ahead of the election. On the other hand, we think the President’s desire to help Ukraine subordinates his aversion to high pump prices and his aversion to awarding Israel support. In a positive development, Chinese traffic congestion levels rose again in the latest weekly figures with traffic congestion levels rising significantly in the prior two weeks!
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