Written Commentary
NATURAL GAS
Despite a lack of downside extension in the early trade today the natural gas market continues to face bearish demand conditions with mild temperatures in Europe and the US. In fact, the bearish drumbeat in natural gas is likely to continue as mild temperatures are expected out 14-days. In conclusion, the trade is free to press prices as the probability of a late winter massive drawdown in inventories becomes minimal. Perhaps more importantly is last week’s jump in the surplus to five-year average storage levels from 5.1% to 10.6% as that should result in US traders shifting their focus toward summer gas market fundamentals. In another bearish development, Asian LNG prices continue to fall with mid eight-dollar pricing replicated by similar price weakness in Europe!
CRUDE OIL
In our opinion the energy markets were disappointed in the lack of ongoing evidence of improving energy demand and were also injured following a massive 12-million-barrel inflow to weekly EIA crude oil inventories. In another negative supply development, the volume of crude in global floating storage this week increased and reached the highest level since October 22nd and that should entrench the oversupply theme in today’s action. With OPEC and IEA demand forecasts offsetting, disappointing EIA gasoline and distillate implied demand readings this week leaves demand in favor of the bear camp. However, the substantial weekly inflow to EIA crude oil inventories is partially countervailed by the fact that the EIA crude oil year-over-year deficit expanded from 27.6 million barrels to 31.9 million barrels. As if the bear camp did not have enough evidence in its favor, the demand for US crude will remain very low following yesterday’s refinery utilization reading of 80.6% which in turn is the lowest since December 2022. In conclusion, a leadership rotation has taken place in the petroleum markets with crude oil potentially lagging the products on rallies and leading the products on market declines.
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