Written Commentary
CRUDE OIL
While the EU embargo against Russian oil has been widely anticipated since the initial days of the invasion, a formal agreement has ignited prices to fresh contract highs early today. Crude future spreads have also turned bullish, the trade is anticipating a record summer driving season and suggestions overnight from the head of the IEA to German officials that the current energy crisis is “much bigger” than the oil shortage of the 1970s certainly provides a combination of fresh speculative buying and longer-term hedge buying. While the world has not embraced the opening of Shanghai as a significant economic event that news is likely adding to speculative buying early today. In the end, ongoing reports of robust demand and rising US refinery operating activity should keep the drawdown on US crude oil inventories in place. However, the actual EU agreement is mostly focused on seaborne supply, with pipelines and gas generally exempted.
The scary thing for global fuel users is the fact that the net spec and fund long in gasoline is near the lowest levels since September 2021, as that suggests buying fuel remains substantial. Gas (RBOB) positioning in the Commitments of Traders for the week ending May 24th showed Managed Money traders are net long 56,264 contracts after net selling 4,293 contracts. Non-Commercial & Non-Reportable traders were net long 43,700 contracts after decreasing their long position by 3,050 contracts.
NATURAL GAS
The natural gas market is not participating in the sharp upside extension in the petroleum complex and that is likely the result of a lack of EU restrictions on natural gas and pipelines from Russia. Apparently, Russia has begun to halt gas supply flow to unfriendly countries like the Netherlands. However, the EU has specifically indicated it will not ban Russian gas and that is probably undermining prices early this morning! Nonetheless, traders expect ongoing strategic reserve building by sovereign entities, as the upswing in the northern hemisphere cooling season gets underway. Furthermore, Asia demand also looks to be focused on strategic supply filling, with the EU considering opening a large storage facility.
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