CRUDE OIL
In our opinion, the path of least resistance remains down in the petroleum markets with global demand concerns justified by recent soft scheduled data both inside and outside of China. Furthermore, euro zone industrial activity softened, and the trade expects to see a softer US Fed Empire State manufacturing reading later today. According to the Iraqi oil minister he does not expect OPEC+ to make additional cuts in their meeting next month and that should give confidence to the bear camp. Furthermore, recent strength in the dollar and recent indecision in global equity markets leaves demand for US oil soft. However, the US recently posted record crude oil exports which makes the action in the dollar very important to the world oil trade. In a potential supportive development in the coming weeks, Chinese state-run refineries are expected to pump up their refinery activity to the highest level since the beginning of 2021 with 10 facilities still undergoing maintenance. In another potentially supportive development, Russian oil export duties are scheduled to rise in June and that could discourage some Russian exports. Items providing support to crude oil this morning include the seizure of another oil tanker by Iran (the 3rd), significant Chinese road congestion and evidence of a decline in Chinese crude oil supplies.
NATURAL GAS
While the most significant force in the natural gas trade is the market’s capacity to consolidate above the early May spike low, the market is still facing significant fundamental resistance from both supply and demand elements. In fact, last week the EIA natural gas in storage report showed an injection of 78 BCF which resulted in a surplus to the 5-year average of 18.4%. With US demand expected to be very low in the coming 2 weeks, the path of least resistance is down, especially with the surplus to 5-year average inventory level should grow. In a longer-term minimally supportive development predictions from Bloomberg indicates that US power demand has picked up despite the season, with gas demand for power generation reaching the highest seasonal levels since 2014 (according to Bloomberg). The weekly Baker Hughes rig operating count showed a decline of 16 rigs from last week on a total of 141 rigs operating.
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