Written Commentary
CRUDE OIL
While crude oil were lifted yesterday by reports of intense bombing on the outskirts of the Ukrainian capital and other major cities in Ukraine, the bias in prices has shifted down this morning off slack Chinese economic news and word that the US is planning to release 1 million barrels per day of SPR supply for several months. However, with the Russians reneging on promises to moderate aggression as a show of faith in the peace talks, added supply flow from the US SPR is largely discounted. On the other hand, the IEA is thought to be considering strategic stock supply releases and that should embolden the bear camp early today. While strategic petroleum reserve releases from the EIA and the IEA will not solve the shortfall in global supply over the long term, the combined release of supply should prompt a brief decline in prices.
Product highlights from the weekly EIA report came in the form of builds in all 3 major product inventories and from slack gasoline/distillate implied demand readings. While the US refinery operating rate is the highest since July 2021, that rate remains below the 94.5% operating rate seen at the end of December 2019. Nonetheless, refinery activity has picked up from near 85% eight weeks ago to 92.1% this week and given the trend higher in refining activity, the seasonal rise in gasoline consumption and could be countervailed by rising supply availability.
NATURAL GAS
The natural gas market forged a large range reversal yesterday off positive leadership from crude oil and from German warnings of an acute gas shortage. In retrospect, the $0.38 plus range in May natural gas yesterday highlights the highly fluid condition of the gas market especially with Russia continuing to aggressively bomb large portions of Ukraine. Another primary source of volatility in natural gas comes from the ability of Russia to turn on and turn off the flow of gas to Europe via pipelines.
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