Written Commentary
CRUDE OIL
Obviously, the energy markets are under significant demand destruction liquidation pressure. Given the aggressive mid-May low to high rally in crude oil of $16, traders should expect a significant technical stop loss selling extension. Under current anxiety/panic flow from equities, the trade is even more willing to embrace the threat of slowing from an overly aggressive and potentially stubborn US Fed. A fresh negative has surfaced this week in the form of signs of a lifting of Venezuelan oil export restrictions. A very minimal negative from the weekly EIA report was a minuscule 100,000 barrel per day increase in US oil production.
On one hand, the decline in weekly EIA gasoline stocks was the most significant bullish development for the product markets yesterday. Furthermore, the large gasoline stocks decline took place in the face of reports of significant European gasoline moving toward the US. However, a contraction in recent retail gasoline demand in the monthly retail sales report of 2.6% should give the bear camp some near term confidence that prices were ahead of fundamentals with the rally above $3.80 in the July gasoline contract. On the other hand, China has announced reduced fuel exports, the year-over-year deficit in US gasoline inventories jumped to 14 million barrels this week and implied gasoline demand rose above the psychological 9 million barrel per day level this week (the highest of the year).
NATURAL GAS
All things considered natural gas price action yesterday was impressive in the face of an avalanche of negative outside market influences. Furthermore, a modest decline in natural gas prices today is another testament to solid core bullish fundamentals. In fact, the market held up despite ongoing Russian gas flow through pipelines under Ukraine. On the other hand, Russia is expected to cut off gas flow to Finland because of their move to join NATO. According to credible sources, Russian gas deliveries to Finland will cease on May 20th or 21st.
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