Written Commentary
CRUDE OIL
July Crude Oil is sharply higher this morning after trade talks between the US and China over the weekend resulted in a temporary, 90-pause in the heaviest tariffs. Under the agreement, the US. will cut the extra tariffs it imposed on Chinese imports to 30% from 145%, and China will cut its duties on US imports to 10% from 125%. The Baker Hughes rig count showed US oil rigs in operation were down 5 to 474 last week. This was down from 496 rigs a year ago and above the five-year average of 458. Oil rigs are the lowest since January. Talks between Iranian and U.S. negotiators to resolve disputes over Tehran’s nuclear program ended in Oman on Sunday with no agreement but further negotiations planned. A agreement would open up Iranian supply to the world market. Sanctions have limited their sales, but some Iranian crude has made it to China and India despite US attempts to interrupt them. Reuters reports that traders have rebranded more than $1 billion of Venezuelan oil shipments to China as Brazilian crude over the past year, enabling tankers to sail directly from Venezuela to China and skipping the stop-over in waters off Malaysia. Friday’s Commitments of Traders Report showed managed money traders were net sellers of 10,094 contracts of crude oil for the week ending May 6, reducing their net long to 143,938.
NATURAL GAS
July Natural Gas was not able to extend last week’s rally despite the positive reaction to the trade talks. Last week the market rallied from prospects of lower US natural gas production if US crude production were to collapse in the face of lower crude oil prices, as a good portion of gas production comes from joint wells. Now that crude oil prices have recovered, oil (and gas) production prospects have improved. The Baker Hughes rig count showed US natural gas rigs in operation were unchanged at 101 rigs last week. This was down from 103 rigs a year ago and below the five-year average of 115. However, total oil and gas rigs fell to 578, down from 584 the previous week and the lowest since January 24. Financial firm LSEG said last week that average gas output in the lower 48 states had fallen to 103.4 billion cubic feet per day so far in May, down from a monthly record of 105.8 bcfd in April. The average amount of gas flowing to the eight big LNG export plants fell to 14.9 bcfd so far in May, down from a monthly record of 16.0 bcfd in April. The Russian news agency reported today that possibility of Russian gas shipments to Europe are being discussed at talks between the Russia and the US regarding a peace deal in Ukraine. A resumption of Russian gas suppl to Europe could undermine demand for US LNG. The 6-10 and 8-14 day forecasts now call for below normal temps in the northern half of the US, which could extend heating demand later in the season. Friday’s Commitments of Traders Report showed managed money traders were net sellers of 932 contracts of natural gas for the week ending May 6, increasing their net short to 45,230.
PRODUCT MARKETS
Like crude oil, RBOB and ULSD have rallied sharply overnight in the wake of the US/China trade talks this past weekend. Friday’s Commitments of Traders Report showed managed money traders were net buyers of 6,032 contracts of RBOB for the week ending May 6, increasing their net long to 29,361.
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