Written Commentary
CRUDE OIL
While the energy markets managed to reject a six-day low again overnight, and surprisingly held above the early lows following a bearish weekly EIA inventory report yesterday morning the bias in the market is pointing down. However, US implied gasoline demand picked up and that should have served to countervail disappointing inflows to API and EIA crude stocks this week. Certainly, a measure of bearishness this morning is the result of another higher high in the dollar and the emergence of a slightly hawkish US Fed bias. Another sign of bearish sentiment toward crude is ongoing weakness despite a decline in weekly US oil imports and an increase in US oil exports. Furthermore, the highest refinery operating rate since the second week of December should have underpinned crude oil prices around what is becoming a noted consolidation support zone of $77.50.
NATURAL GAS
Apparently natural gas buyers are not put off by prices sitting $0.85 above the March lows as market finished very strong yesterday and extended the May rally to $0.78 overnight. It should be noted that the rally in US prices is not taking place in a vacuum with European gas prices posting five-month highs yesterday. However, as mentioned earlier this week, European cash gas prices at times over the last two years were 10-15 times higher than current prices, and therefore the trade is not seeing as much demand-deterring price shock as might be expected. Furthermore, the bull case has been enhanced by evidence that demand for US LNG feed gas for export has increased and is likely to remain beyond capacity in the near-term. This week’s Reuters poll projects EIA gas in storage to increase by 82 bcf to 91 BCF which suggests the shoulder season between winter and summer continues, but so far that influence has been discounted.
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