Written Commentary
CRUDE OIL
The energy markets continued to show noted choppy action yesterday, but at times managed very significant gains without a dominating bullish fundamental theme. Therefore, initial weakness today is not surprising. In fact, the bear camp starts the Friday US trading session with predictions from Morgan Stanley of softening Chinese energy demand ahead, because of the inability of China to quickly bring its infection flare under control. On the other hand, evidence of plummeting Chinese energy demand was seen from a 20% drop in April fuel consumption compared to year ago levels.
Despite seeing massive flows of US gasoline to the West Coast (likely because of high prices and strong demand) the bias in the RBOB market this morning is slightly negative. As indicated in crude oil coverage today, the major story within the energy complex in the months ahead is likely to focus on the jet fuel market. Historically, refiners have preferred to produce greater amounts of gasoline per barrel than distillates and jet fuel because of greater profit margins.
NATURAL GAS
It appears that the June natural gas contract has found a measure of value around the $7.00 level, perhaps because of overnight projections that Russia would see 30% of its gas sales to Europe blocked. However, in our opinion that is a smaller percent of lost sales than the market priced in at $8.00, and it might also be a smaller percentage of lost sales than is factored in at $7.00. On the other hand, with a larger than expected weekly injection to EIA storage and a narrowing of the deficit to the 5-year average storage yesterday, we would have expected natural gas prices to have sharply extended this week’s slide.
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