Written Commentary
CRUDE OIL
The crude oil market swung widely in both directions yesterday, possibly because of residual stop selling from the recent aggressive washout. However, negative chart signals were offset by the very impressive strong close yesterday and the higher high early today. In addition to improving macroeconomic sentiment in Western economies, the bull camp should be emboldened by a surprise decline in API crude oil stocks of 3.2 million barrels. Not surprisingly, the API surprise has reduced expectations for the EIA crude oil stocks inflow from 1.8 million barrels yesterday, to only 800,000 barrels today. It should be noted that crude oil in European storage fell 1.3% on the week according to private estimates. We think a modest inflow to EIA crude oil stocks would be bearish as an inflow would be the 6th straight week of inflows. However, crude oil could see support from overnight chatter from the Middle East suggesting the markets are removing war premium too quickly. Another supportive development in the marketplace is the prospect of Iranian sanctions even though sanctions have not been very effective in reducing net exports. On the other hand, the Biden administration might slow walk the implementation of sanctions in hopes of restricting US pump price gains ahead of the election. It should also be noted that traders expect Chinese private oil refining companies to pick up buying interest just in case Iranian oil exports are disrupted. However, some Iranian oil shipments to China utilize at sea ship to ship transfers to disguise the origin of the oil. At least a portion of an improved macroeconomic environment is offset by unsold west African May cargos. However, the positive demand theme is saved by news that Indian crude oil consumption this year is expected to increase by 4.6%. Not surprisingly, Nigerian crude oil prices are expected to decline on soft June sales programs which suggest early signs of summer demand are disappointing. In a development likely heavily discounted by the trade, the Russian Econ ministry predicted that Brent crude oil prices would fall in the coming years. Another potential longer-term negative is an earnings “beat” by Halliburton which resulted from higher international drilling business which in turn could point to increased production ahead. With improved global economic sentiment, a possible Iranian supply interrupting sanctions package and a trade back above $83.50 the crude oil bias has shifted back to the upside.
NATURAL GAS
With a 4th straight higher high for the move and the highest trade since April 10th yesterday, we think a measure of profit taking on long-term short positions is serving to lift prices. However, this week’s Reuters poll predicts EIA gas in working storage to increase by 60 BCF to 86 BCF which should undermine the bulls and embolden the bears. From a technical perspective, the charts have obviously improved with two longer-term downtrend channel resistance lines taken out on the upside this week and a new high trade for the month of April today. In the end, the bull camp has momentum in its favor with classic supply and demand readings still entrenched in the bear category. In a slightly bearish development, a new Indian LNG import facility has pushed back its commissioning/opening.
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