Written Commentary
NATURAL GAS
With the sharp range down extension in natural gas, the return to normal US temperatures might have slowed US inventory building while strength in the dollar and the significant run up in gas prices throughout May might have pushed European buyers back from rebuilding their inventories. This week’s Reuters poll projects EIA natural gas in storage to see an injection within a range of 73 BCF to 86 BCF. From a technical perspective, the July natural gas contract spiked down through the first retracement of the February/May rally and that has been followed by a failure at the 50% retracement price of $2.6445, leaving the next downside target in July natural gas at $2.609.
CRUDE OIL
Yesterday afternoon API crude oil stocks reportedly declined by 6.49 million barrels with a minimal decline in API gasoline inventories but that news did not provide a cushion against the early liquidation tilt. On the other hand, energy price action today is likely to be temporarily dominated by macroeconomic signals flowing from a quarterly US PCE report which is likely to drive the dollar and interest rate markets. In a supportive development overnight Asian crude oil imports in May registered a 12 month high but the lion’s share of the strong imports was the result of Indian and not Chinese demand. Furthermore, Japanese April crude oil imports reportedly fell by 3.9% and further strength in the dollar is likely to reduce foreign demand for US oil. Another bearish development is news that the Saudis have cut their Arab Light Oil Prices to Asia by $0.40 for July deliveries. It should be noted that Yemeni rebels attacked a ship in the Red Sea earlier this week, slightly elevating risk of a supply disruption in the region.
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