Written Commentary
CRUDE OIL
May crude oil is drifting lower ahead of the US opening following yesterday’s drive into a new 5-month high. The outside market tone is softer to start, with a measure of profit taking expected in front of today’s Federal Reserve meeting notes. The oil market appears to discount reports last night from the American Petroleum Institute (API) showing a draw in US crude oil supplies last week of 1.519 million barrels. This is different than expectations for this morning’s EIA inventory report calling for a modest build in the range of 25,000 barrels. At least for this morning’s price action, this week’s string of supportive US and Chinese economic data, Russian supply constraints following Ukrainian drone attacks and a pullback in oil export flows from Iraq and Saudi Arabia are taking a backseat. The market also appears to discount an interview with a prominent hedge fund manager who’s bullish oil if the Fed pursues rate cuts, especially as China’s manufacturing sector recovers and Europe moves to replenish supplies.
PRODUCT MARKET FUNDAMENTALS:
RBOB prices enter US trading hours under pressure and reverse yesterday’s rally into new contract high territory. Bearish reversal action appears to be profit-taking following a 10% gain in prices from last week’s low into yesterday’s high. An AAA report indicated that US gasoline pump prices are at their highest seasonal average in two-years. Downside potential in US gasoline should be held in check by tight inventories that are 2.6% below their 5-year average for this time of the year. API inventory data last night showed a draw in US gasoline supplies last week of 1.574 million barrels, which is in alignment with expectations for today’s EIA report. Meanwhile, US distillate inventories are also tight, with last week’s EIA reading of 117.898 million barrels or 7.3% below its 5-year average for this time of the year. Like RBOB, any downside in ULSD is likely to be checked by Chinese customs data that showed a 21% jump in fuel oil imports of 26.78 million barrels during the first two-months of the year compared to the year ago period.
NATURAL GAS
May natural gas prices challenged the topside of the recent trading range at the $1.90 level and have since backed off. Support comes from a pullback in production ahead of US maintenance, prospects for increased power demand from a colder weather outlook and expectations for a boost in LNG demand. The latest weather forecasts call for a colder shift in US temperatures across the Midwest and along the east coast into the weekend. The bull camp also looks to prospects for reduced near term production ahead of maintenance events in the Northeast, Texas and Permian New Mexico.
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