Written Commentary
CRUDE OIL
We are a little surprised with the weakness in crude oil prices this morning as big picture macroeconomic sentiment appears to be upbeat. However, the May rally consistently priced in positive demand with the rally early last week prompted by Saudi warnings for those short the market ahead of the OPEC+ meeting providing some additional lift. Obviously, the trade saw the Saudi threat as a signal of additional tightening by the cartel, but that supportive issue was eliminated by Russian statements late last week indicating there would be no change in the current OPEC+ production arrangement. Furthermore, the market is trading lower despite reported progress in a US budget deal and that along with weakness in the face of stronger equities highlights bearish control of energies from outside market forces. An internal bearish fundamental from the weekend came from Dubai with the OPEC Sec. Gen. suggesting the cartel will “welcome” Iran’s return to their typical market output share. Another bearish influence likely to pressure crude prices today are fresh reports that Russian output has not been reduced and demand is obviously under threat because of the Chinese Covid outbreak. Another bearish internal development arose from reports that the Saudis will reduce their Arab light oil pricing by $0.63 for July contracts. Fortunately for the bull camp, the crude oil market has a mostly liquidated net spec and fund long position, especially when prices temporarily dip below $70.00 this week.
NATURAL GAS
The natural gas charts remain bearish with near-term consolidation low targeting seen at a recent double low of $2.31 in the July contract. In a longer-term supportive development, the US rig operating count continues to decline with the decline in drilling rigs operating the fastest since 2020. In retrospect, holiday weekend temperatures in the US were largely demand-negative with a large portion of the US not needing cooling. On the other hand, hot weather in China is expected to increase import demand and provide support to global LNG prices. Yet another supportive overnight development discounted by the early trade today is a 2.8% decline in floating LNG supply versus the prior week. Furthermore, Hedge funds increased their bullish views last week with 9-month highs in their net long positioning.
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