Written Commentary
NATURAL GAS
Natural gas prices pushed higher during the initial morning hours, with the May contract approaching last week’s high at $1.961. Unseasonably warm temperatures across the US have diminished heating and power plant demand during the final weeks of the North American winter heating season. US dry gas production is barely above the 100 bcf per day level and well below its record highs, due in large part to US gas storage running 37% above the 5-year average. Although there may be a mild uptick in Chinese LNG import demand, US LNG continue to hold just above the 13 bcf per day level.
CRUDE OIL
Crude oil builds on last week’s 4% rally and trades to its highest level since October. Stronger than expected Chinese factory output data overnight is providing early support. There are supply-side concerns with more Ukrainian drone attacks on Russian infrastructure over the weekend. Vladimir Putin won the Russian election over the weekend and vowed to retaliate against Ukraine for the continued drone attacks on key infrastructure. By some accounts, as much as 7% of Russian refining capacity has been idled during the first quarter. There were more attacks on shipping near Yemen over the weekend after a Houthi leader warned that they would continue with the attacks during Ramadan. Some lingering support may be coming from last week’s IEA and OPEC reports showing an improved demand outlook for crude oil. The spread between Brent December 2024 and December 2025 futures continues to rise, increasing backwardation, which can indicate oil may see further gains suggesting tighter second quarter conditions.
PRODUCT MARKET FUNDAMENTALS: A strong early showing in crude oil, fresh geopolitical concerns and a supportive outside market tone provide initial support. As a result, May RBOB gasoline prices cleared the October swing high and rallied into new contract high territory. Reports out of China over the weekend show an uptick in gasoline demand over the Lunar New Year as refiners processed a record amount of crude oil. There were also reports that over 370,000 barrels per day of Russian refinery capacity is offline due to drone attacks. Although US refinery utilization has risen more than 5% over the past two weeks to 86.8%, it is still below last year’s 88.2% and well below the 92% level seen earlier this year. North American driving demand should see a mild uptick over the next few weeks as we approach the Easter holiday weekend at month-end.
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