Written Commentary
CRUDE OIL
The path of least resistance in the crude oil market remains down following a very large increase in API crude oil stocks yesterday and an increase in API fuel inventories last week. The Reuters poll sees crude oil stocks at the EIA declining by 1.4 million barrels, but that estimate is obviously in peril after the API crude oil inventories jumped sharply yesterday. When it rains, it pours for the bear camp with the markets definitively settling on the idea that OPEC+ will not cut supply in the June 4th meeting. Certainly, there will be some support for crude oil prices today from a favorable private Chinese PMI reading and from the passage of the debt ceiling bill by the House. In a development that could be perceived as bullish or bearish China and India apparently saw record Russian crude oil imports last month. Another negative factor that might have repercussions on the upcoming OPEC Plus meeting was a report from EIA that US production jumped sharply during March to 12.696 million barrels per day (bpd) as it reached a 3-year high, with noted output gains coming from Texas. It should be noted that US crude oil stocks reached their lowest levels since early February in last week’s EIA report, even though there have been eight weekly draws in the row from the Strategic Petroleum Reserve. Last week’s US refinery throughput reading was just above 16 million bpd, the highest reading since December, and another result at that level or higher could result in US refinery utilization reaching a 2023 high. After the close, the API survey said that US crude oil stocks had a weekly increase of 5.2 million barrels, which was in sharp contrast to trade forecasts for a moderate weekly decline.
NATURAL GAS
Natural gas prices retain a downward bias but have shown some respect for support at $2.25. On the other hand, the lower close yesterday was the fourth negative daily result in a row. Fortunately for the bull camp the latest 6-to-10-day forecast has a heat dome in the Pacific Northwest and northern Plains, but that is offset by cooler than normal temperatures in the southwest US and the Atlantic Coast. Unfortunately for the bull camp there has been a surge in Canadian gas imports as Alberta wildfires recede. Recent US LNG exports have fallen back from their record highs last month but should stay above 13 bcf per day this week and next week. The Reuters survey has a median forecast for today’s EIA storage report to show a weekly storage build of 101 bcf. While this is well above last year’s comparable build of 82 bcf, it would be roughly in-line with the 5-year average build of 101 bcf. This should result in US gas storage being just over 16% above the 5-year average. While the bears will start out with the upper hand today, keep in mind that July futures have had 3 straight daily lows below $2.260 that did not take out the early May contract low of $2.233. As a result, a surprisingly small weekly build in EIA storage could set the stage for a sizable, short covering rebound otherwise the prospects of a downside breakout are significant.
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