Written Commentary
CRUDE OIL
Crude oil prices stayed inside Wednesday’s wide range overnight, trading both sides of unchanged. China’s May crude imports came in at 10.79 million barrels per day (bpd), 11.7% above last year. This would normally be supportive, but it was overshadowed by new COVID restrictions in Shanghai and Beijing that could weaken near-term demand. And while crude oil forged another new contract high on Wednesday, the products lagged, possibly because of a significant jump in the US refinery operating rates in the weekly EIA stocks report. The report could have been considered bearish given that three of the four major inventory categories showed weekly builds. However, after the report was released, crude oil quickly rallied $1.00 per barrel and gasoline rallied $0.10 per gallon.
Both product markets have shaken off early pressure and have climbed into positive territory this morning. Chinese May refined product imports were more than 35% above April, which shows an uptick in demand. The weekly EIA implied gasoline demand reading came in at almost 9.2 million barrels per day, which is the highest reading since December and the third reading above 9 million barrels per day this year. While the gasoline inventory reading yesterday showed a minimal decline, seeing stocks contract in the driving season is bullish. The stocks deficit relative to last year widened by almost 8 million barrels, and they were well below the seasonal average.
NATURAL GAS
A fresh contract high yesterday in natural gas was heavily based on projections for record cooling demand in Texas and less from projections of “hot pockets” in other portions of the US. Later in the day there was a sharp turn to the downside following reports of an explosion at a Texas LNG export facility. Updated reports have that facility shut down for three weeks. This has led to further selling that has put the market to its lowest level in 2 1/2 weeks this morning. The market had reached its highest level since July 2008 before the selloff yesterday, but current prices remain around $7.50 below their all-time highs. With major UK and European storage only 50% filled and leaders in those nations wanting to fill to capacity, there is significant demand being pulled forward.
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