Written Commentary
NATURAL GAS
The bull camp continues to be “lucky” as weekly injections in the US continue to rebuild supply with the most recent surplus to the 5-year average reaching 22.2%, which is the highest since March. However, the market has also managed to hold up consistently over the last several weeks despite widespread expectations that both the US and Europe will see inventories build quickly in the shoulder season and yet the market has held up rather impressively to the evidence of Chinese slowing overnight. Apparently, the Russian national gas company continues to send full allotments through the pipeline under Ukraine and that combined with milder US temperatures should keep June natural gas prices near the middle/lower end of the last 4 weeks trading range. Another bearish development is proof that Russia continues to send gas which ultimately makes its way to Europe. Even though the natural gas market has held a large net spec and fund short position since the beginning of the Covid lockdowns, the shorts have not been presented with a definitive reason to exit.
CRUDE OIL
With the Friday rally back above the 50-day moving average was partially the result of lower US production, the oversold condition of the crude oil market from the May high to low washout of $7.00 added to the cleansing bounce. However, the fundamental outlook for energy demand has suffered a major blow following disappointing Chinese manufacturing PMI readings released overnight. Bearish supply side influences remain from last week’s news that big oil posted very significant profits from strong production and high margins. While it may not be a direct supply side support for the bull camp, reports that a Ukraine drone caused a major Crimea fuel depot fire could heat up the war in Ukraine. While a quasi-triple low in June crude oil last week around $73.93 that level could lend technical support for prices to start the new trading week, but the potential for fireworks from the financial markets into the US Federal Reserve rate decision on Wednesday could produce a failure of that support.
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