Written Commentary
CRUDE OIL
With overall global macroeconomic sentiment deteriorating, an upside breakout in the US dollar and bearish hedge fund manager views on crude and product prices, the bias is down in crude oil. Goldman has added to energy demand concerns by suggesting that precipitous weakness in distillate prices and consumption portends lower global GDP readings. Additional bearish news includes Indian crude imports from Russia which are expected to surpass Indian imports from Saudi Arabia for the first time ever. However, the downside could be cushioned by evidence of further strengthening of global jet fuel demand, by lower US production and from a recent pattern of improving US energy demand. Another minimally supportive development is a 4th straight month of below OPEC+ April production Output from Kazakhstan. The bull camp is drafting a large measure of support from developing views of good gasoline demand in the US and therefore this week’s EIA inventory report will be important to the trade with particular interest on the weekly implied gasoline demand readings. Another critical takeaway from this week’s EIA inventory report will be the change in crude oil stocks with the prior 2 weeks registering a total decline of 9.6 million barrels. Fortunately for the bull camp, the refinery operating rate last week reached the highest level of the year and has settled in above the operating rate of year ago seasonal readings. Therefore, it is possible the US is beginning to gear up for the summer driving season which is expected to be very robust from pent-up travel demand because of very expensive airfares.
NATURAL GAS
While the natural gas trade saw bearish weather and record supply from the US yesterday, the July contract miraculously held support from the last 2 week’s lows and remained within the recent consolidation zone. However, there are some cold areas projected out over the coming 4 days and that has probably served to keep the bear camp hesitant. On the other hand, with the US lower 48 states producing record output in April and production likely to match and exceed record levels again this month, we are doubtful that even record US export will prevent a series of noted builds in US inventories before cooling demand begins to limit injections. In conclusion, we leave the edge with the bear camp and expect a downside breakout in the coming sessions from fears of global slowing and fresh evidence of record lower 48 output readings from the EIA.
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