Written Commentary
CRUDE OIL
In addition to an overbought technical condition, energy prices are undermined by soft Chinese PMI data and an extending pattern of softening US data. However, the US Federal Reserve chairman testifies to Congress today and the bull camp could be “saved” if his testimony is judged to increase expectations for a June rate cut. Internal fundamentals also favor the bear camp with expectations of another weekly inflow to EIA crude oil inventories, rumors of significant Iranian fuel exports, and a failure of the Gaza “cease-fire” talks. Yet another bearish development came from predictions from the trade indicating the extension of OPEC production restraint will not prevent a buildup in global supplies. On the other hand, private estimates predict Chinese commodity imports are recovering with specific predictions of early “robust” 2024 commodity imports. Expectations for this week’s Reuters poll projects EIA crude oil stocks to increase by 2.6 million with another build representing the sixth straight build in weekly crude oil stocks. However, in the coming 48 hours, energy demand prospects will be heavily influenced by US Federal Reserve testimony and US jobs related data.
NATURAL GAS
A portion of the trade has embraced the idea that current gains are the result of very long term short positions being liquidated which some suggest creates a major bottom without prospects of a sustained uptrend. Recently the net spec and fund short in natural gas was the near the largest since last March with that net short the largest since the beginning of the pandemic. Therefore, a large amount of short covering is justified but prices are facing significant headwinds from both supply and demand. In fact, the rally in natural gas is becoming quite surprising with the rally seemingly the result of winter season ending short covering as the bear camp thinks the easy money has been made on the downside. It is also possible that much above normal temperatures throughout the US last week and in the coming days has sparked talk of another hot North American summer. While Asian gas prices have dropped sharply leaving the trade skeptical of recovering near-term Asian demand, that negative impact has been erased by consistent signs of bargain hunting buying by Asian importers.
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