Written Commentary
CRUDE OIL
In addition to very positive chart action after yesterday’s spike down move, the bull camp should be cheered by positive Chinese trade data, signs of an impending massive assault on the southern Gaza city of Rafah, and from the surprise decline in EIA crude oil inventories yesterday. An improved outlook for Chinese energy demand is justified with gains in Chinese imports and exports, news that a major beleaguered Chinese real estate company intends to catch up on missed debt payments and most importantly from a 5.4% increase in Chinese April crude oil imports. In addition to a short-term oversold technical condition, the crude oil market yesterday also saw a surprise decline in EIA crude oil inventories and that likely resulted in some short covering buying. Crude oil might see residual support from increased US physical demand from a 1% increase in the US refinery operating rate, but that news could pressure the product markets from additional supply flows ahead. However, weekly crude oil stocks did decline, and inventories fell back into a year-over-year deficit.
NATURAL GAS
With a fresh higher high for the move yesterday, Ukraine attempting to double power imports because of concentrated Russian attacks on energy facilities, we suspect further stop loss buying from a large speculative short position. In fact, in addition to general energy infrastructure damage, the Russians have also successfully damaged Hydroelectric and thermal energy facilities which could result in a significant deterioration in Ukraine’s ability to battle the Russians. While there have not been intelligence warnings suggesting Ukraine is moving toward a critical condition, a Russian breakthrough with widespread casualties could temper global interest in Russian LNG exports. While the odds of a shutdown the Ukrainian gas pipeline flow due to electric grid problems is not expected, serious Russian bombardment of power stations could threaten a very key source of European supply. Obviously, both sides of the Ukraine war are intensifying attacks on energy infrastructure and therefore nothing can be ruled out.
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