Written Commentary
NATURAL GAS
With a lower low early today extending a five-day pattern of lower highs, the technical bias remains down in natural gas to start today. In fact, given above normal/mild temperatures in both Europe and the US and given US inventories are a startling 30% above five-year average storage levels, natural gas faces significant oversupply into the “shoulder season”. Therefore, traders should expect US surplus readings to continue to expand especially with US export flow periodically disrupted.
CRUDE OIL
Perhaps April crude oil found value at yesterday’s low of $76.79 as the market recoiled sharply from that spike down move. While we think today’s US CPI report will ignite outside market impacts on petroleum prices, a definitive spike in terrorist activity in the Red Sea combined with a shutdown of a Russian refinery following a Ukrainian drone attack should provide support from the supply side of the equation. Furthermore, this week’s Reuters poll projects a minimal inflow to EIA crude oil inventories of 900,000 barrels which would be the smallest build since the third week of this year. Another supportive development overnight came from an increase in Iraq April oil prices to Asia of $0.20 which suggests demand supports higher pricing. While crude oil and gasoline posted lower lows early in the Monday trade, the markets rebounded sharply perhaps from position squaring ahead of the potential for significant volatility in the wake of the US CPI report.
PRODUCT MARKETS
Like the crude oil market, the gasoline market has aggressively rejected yesterday’s lower low and seems poised to challenge the March highs in today’s action. In fact, this week’s Reuters poll projects EIA gasoline stocks to fall by 2.1 million barrels which would be the 7th consecutive decline which could eliminate the year-over-year surplus from last week of 1.6 million barrels. In retrospect, the product markets have shown consistent inventory tightening over the past eight weeks, but the gasoline market continues to hold a year-over-year surplus highlighting the lack of significant tightening through an extended period of very low refinery activity. With increased gasoline supply heading through the system the bull camp will need another increase in weekly implied gasoline above 9 million barrels per day to offset incoming supply.
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