Written Commentary
CRUDE OIL
In retrospect, the crude oil market has stalled and is attempting to build consolidation until a dominating theme gains control. The bull camp should be very disappointed with the crude oil market reaction to yesterday’s much larger than expected EIA crude stocks decline. Fortunately for the bull camp, US crude oil exports jumped the most in a single week for this year which some traders think is evidence that the supply issues in the Middle East have finally brought buying to the US. On the other hand, an application of sanctions on Iran is likely to result in China shifting its purchases to Iran because of deep discounts like the deep discounts offered by Russia in the face of their sanctions. In a generally positive demand development Chinese traffic congestion increased by 1.7% in the recent weekly reading after a 20% rise in the previous week. The prospects of sanctions against Iran were increased after the Senate tied the recent aid package to sanctions against Iran. However, bullish sentiment is also injured by news that the largest oil exchange traded fund (USO) saw its largest daily outflow on record, especially with the two previous days also showing large outflows. However, outside macroeconomic forces are likely to remain bearish with higher interest rates and signs of residual soft US gasoline demand. While supply issues could suddenly surface and dominate over demand news, energy demand views will likely be impacted by the release of an important US inflation measure in the form of PCE.
NATURAL GAS
Apparently, the bull track ran its course yesterday with natural gas prices failing to make a new high for the move and reversing aggressively from the early high and trading back below a key psychological support level of $2.00. Unfortunately for the bull camp, this week’s Reuters poll projects EIA gas in working storage today to increase by 60 to 89 BCF, which should be a very bearish result. In a slight mitigation of the overwhelming bear case, the surplus to the five-year average inventory levels narrowed to the lowest level since March 1st last week. However, the surplus to the five-year average inventory level remains lofty at 36.4%.
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