NATURAL GAS
The natural gas market looks to continue a sideways chop as volume and open interest continue to fall with sideways action in prices. Nonetheless, the most likely progression in US and European supply reports favors the bear camp and we maintain our expectation July natural gas will periodically trade below $2.50 this week. On the other hand, it is not clear what significantly above normal temperatures in Spain will do to future summer cooling demand expectations as an early start to the cooling season could elicit further short covering buying. In fact, the most recent COT net spec and fund short position of 112,648 contracts and that could easily provide a wave of surprise short covering. In our opinion, July natural gas is likely to chop sideways in a range bound by $2.75 and $2.59.
CRUDE OIL
While global energy demand fears are not as negative this morning, they remain very much in the trade under the surface and capable of sending crude oil right back down to the recent double low at $76.72. However, cushioning the market overnight are indications that Asian (particularly China) will maintain very strong refinery throughput activity especially with an upcoming holiday. Furthermore, exports in the first quarter from Angola declined by 6% and there continues to be very strong signs of US gasoline demand as indicated from surging imports from Europe that have not raised US gasoline inventories. We do not buy into the crude oil signals of a major bottom from yesterday’s range down and a sharp recovery move especially with signs that Russian crude oil sales in Europe are beginning to be challenged by alternative sources and that could result in Russia reducing prices and keeping market share from global supply sources. Yesterday, the European refinery intake of crude oil reportedly declined by 4.1% in March from February totals indicating refiners were already backing away from activity last month. Looking ahead the market will be presented with earnings reports from major oil companies, but expectations are that profit margins will add more to the result than volumes.
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