Written Commentary
CRUDE OIL
In our opinion, the energy markets are at a very critical junction with OPEC+ preempting the threat of a 2nd quarter global oil surplus with a surprise 1.1 million barrel per day production cut. Obviously, the major washout in crude oil prices in March was the result of expanding demand fears brought on by unrelenting rate hikes and a smattering of soft data points. However, the real focus of physical commodity markets should now shift away from the ebb and flow of internal supply and demand factors and instead focus on “inflation”. In addition to softer US ISM manufacturing and services prices paid readings earlier this week, the markets have seen several international inflation readings contract and therefore next week’s US CPI and PPI reports could be a watershed moment for all markets. Obviously, a dramatic improvement in global energy demand expectations is confirmed following news that Asian imports of crude oil in March rose almost 4% above February and given the first 3-months of Asian 2023 imports stronger than the first quarter 2022. Unfortunately for the bull camp, the market is significantly overbought from the explosion up this week, but gains could extend aggressively if a global risk on wave surfaces.
NATURAL GAS
The natural gas market continues to respect the key $2.00 consolidation support level, it is probably garnering residual support from lingering cold in portions of Europe, is benefitting from a US production setback due to maintenance and should get a lift today from a ramping up of US LNG exports. A longer-term supportive development for natural gas came from India which posted the fastest pace of expansion in power output in 33 years which was in part the result of cold in northern India but was also a result of the Indian economy growing much stronger than all other major global economies. In another longer-term observation it should be noted that the $2.00 level has been a major low zone at least 4 times in the past 15 years. With open interest in natural gas sitting at 1.3 million contracts, prices sitting near past key bottom price levels and hope for ongoing record US exports, there is an argument to suggest natural gas prices should stop going down. However, we have not yet seen a catalyst significant enough to suggest natural gas prices should begin to recover.
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