Written Commentary
CRUDE OIL
In addition to signs of a pickup in EU efforts to ban Russian oil, the energy markets are seeing lift from a possible definitive end to the Shanghai lockdowns, broad-based risk on mentality and a sharp downside extension in the dollar. While seeing Platts exclude Russian product supply from their European diesel and gas oil cargo statistics, will not result in an immediate reaction to tightening global product supply that news should soon highlight the real tightness in supply. However, a daily basis more international operating oil companies are shutting off their purchases of Russian supply. Even though many doubt the US strategic stockpile will run runout strategic supplies in the US are now at the lowest level since 1987.
As indicated in our crude oil coverage today, strong demand for gasoline continues despite the first ever gasoline futures trade above $4.00 and some US retail prices above $5.00. While US implied gasoline demand has been anemic or level, Indian gasoline sales in the first half of May were reportedly the strongest in 2 years. From the supply-side of the equation, Russia has recently backed off its refinery operating rates because of swelling domestic inventories, but we doubt Chinese gasoline exports will serve to turn the head of the gasoline market away from the upside.
NATURAL GAS
While the July natural gas contract spiked to a 7-day high overnight, the market posted a dramatic reversal yesterday, thereby tempering ongoing bullish sentiment somewhat. According to recent information from Ukraine’s state gas transit operator, gas flow from Gazprom for today declined from 64 mcf to 53.8 mcf! We suspect the reversal from yesterday’s high was partly the impact of news that a major German power producer opened an account with a Russian bank for the purposes of paying for gas. In a positive development, the Russian national oil company indicated increased consumption from cold weather while US 1-to-5 day and 11 to 15-day temperature forecasts offer significant above normal temperatures in many portions of the US. It should also be noted that a Norwegian gas producer extended and expanded an unplanned gas outage.
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