Written Commentary
CRUDE OIL
Despite positive global equity market action overnight crude oil prices fell below yesterday’s lows possibly because of renewed energy demand fears sparked by mild recession forecasts from US Federal Reserve economists. While not significant bearish news from China overnight, reports that Asian refiners will increase gasoline production at the expense of diesel production could be seen as a bearish product development as that addresses tightness in global gasoline supplies and should serve to reduce excess supplies of diesel. However, declining refinery margins are likely to result in lower overall global refinery activity which in turn could result in softer prompt crude oil demand.
PRODUCT MARKETS
Like the crude oil market, we see gasoline overbought and vulnerable to some back and fill action today. In fact, it is difficult to discount news that Chinese March fuel exports jumped by nearly 60% as that could show ongoing heavy competition for US products in Asia. Adding into that bearish theme are predictions overnight suggesting Asian refiners will boost gasoline output at the expense of the oversupplied diesel market. However, road activity has reportedly recovered in China again, seasonal demand improvement is underway in the northern hemisphere and US refiners continue to have more than 10% of capacity idled and US gasoline stocks have a year-over-year deficit of 10.8 million barrels.
NATURAL GAS
Seeing European LNG prices softened in the face of the beginning of efforts to refill national storage levels highlights a lack of bullish sensitivity in the market. Furthermore, the market is facing shoulder season in the demand cycle and overall global economic sentiment is neutral to slightly disappointing. With the technical reversal from the Wednesday high followed up by a retest of critical consolidation support at $2.00, the bear camp has an edge from the charts. On one hand, it is surprising that natural gas prices have managed to respect consolidation low support at $2.00 after the market was presented with news of a 3.6% first quarter decline in Chinese gas imports.
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