Written Commentary
CRUDE OIL
Despite a bullish commodity forecast from Goldman off expectations of better growth and lower interest rates, crude oil is merely holding within Friday’s range in the early action today. Unfortunately for the bull camp, crude oil in floating storage increased over the last week by 87,000 barrels, with supply in the Middle East and west Africa climbing and US Gulf Coast supplies up a blistering 147%. Fortunately for the bull camp, floating supply in the Asian Pacific region fell by 1.8% with European inventories down by less than 1%. Other fresh supportive developments over the last week include an ongoing shutdown of a Turkish pipeline and market chatter of favorable technical signals from the charts. With last week’s corrective setback balancing the compacted mid-March run up, the crude oil market could be more sensitive to bullish items this week. A portion of the international community is lining up against Israel, and a political showdown is possible if Israeli forces attack the Gaza city of Rafah. From a longer-term perspective, the bull camp should be emboldened by news that US oil and gas rig drilling counts declined by five which puts rigs operating 18% lower than last year. Going forward, crude prices should draft support from another increase in the US refinery operating rate which now stands at a lofty 87.8% or 17.1% above the readings seen early last month. Crude oil should also draft support from signs of improving seasonal implied gasoline demand. Unfortunately for the bull camp, outside market forces are slightly bearish early today with the dollar showing strength and the macroeconomic outlook negative following weak global equities.
PRODUCT MARKET FUNDAMENTALS:
Relatively speaking, the gasoline market has held up better than the crude oil market, perhaps because of last week’s larger than expected contraction in EIA gasoline inventories. While implied gasoline demand last week declined slightly, the pattern of demand has been up since the beginning of February as per normal seasonal tracking. However, in the coming weeks average seasonal demand retrenches as spring break passes. Even though EIA gasoline inventories shifted back into a surplus versus year ago levels last week, recent Ukrainian drone attacks on Russian refiners and retaliation by Russia on Ukrainian power stations indicates both forces are targeting infrastructure capable of restricting supply of Russian gasoline and or Ukrainian natural gas.
NATURAL GAS
The craziness of the Ukraine and Russian natural gas situation just got even more crazy with Russian missiles targeting a Ukrainian underground gas storage facility at the same time Russia continues to ship natural gas through pipelines under Ukraine. In fact, the Ukraine state gas transit company says Russian natural gas flows increased slightly from March 24th to March 25th. However, global natural gas fundamentals remain very bearish with US storage shifting to injection status last week and the US storage level reaching a very lofty 41% above five-year average levels. In a longer-term bullish development, the US gas rig drilling count fell to the lowest level since January 2022 indicating that low prices are having an impact on output.
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