Written Commentary
CRUDE OIL
At least in the early trade today energy prices are likely to be impacted by big picture macroeconomic signals from the first of constructive with uptrend channel support in July crude oil today tested and respected early on at $75.61. The bull camp also has the buttress of a strong oil demand growth forecast from OPEC, OPEC projections its April oil output fell by 48,000 barrels per day and predicting non-OPEC oil production falling by 198,000 barrels per day last month. In a supportive development for WTI, an analyst on Reuters overnight suggested Asian refinery margins have shifted to favor importing crude oil from the Americas. However, that favorable margin shift could easily be negated with a noted strengthening of the US dollar. Furthermore, predictions from the US call for US shale output to hit a six month high next month. However, there are several crosscurrents operating in the petroleum markets with geographical supply imbalances and global demand differentials likely to add a measure of volatility to prices regardless of the situation in the Middle East. Fortunately for the bull camp, global crude oil in floating storage fell by 11% on a week over week basis and the trade generally expects OPEC to extend production restraint through the third quarter.
NATURAL GAS
In retrospect, chart action in natural gas yesterday remained in favor of the bull camp following yesterday’s resounding rejection of an early dip in prices with the June contract at times managing to trade $0.13 above the early low. Obviously, a pattern of short covering from long held short positions was underway, but it appears the bias has reversed to the downside this morning. Undermining the gas market today is a week over week 5.4% jump in LNG on floating storage, slightly cooler recent US temperatures and the prospect of an increase in US gas production next month. However, the gas market should be cushioned against the current slide from the US forecast calling for increased cooling degree days in the Northwest, California, Southwest, Gulf Coast, Florida, and the Tennessee Valley throughout the next week.
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