Written Commentary
CRUDE OIL
Technically crude oil has broken down on its charts in the early trade today with the trade potentially tempering Chinese energy demand expectations in the wake of precipitous declines in key Chinese inflation readings overnight. However, weak Chinese inflation readings were offset by speculation of potential Chinese stimulus efforts. Crude oil prices might also be under indirect pressure this morning from reports of significant Chinese “reexport” of LNG. Furthermore, global floating storage of crude oil increased last week, but Asian floating storage levels declined by 1% with Saudi Arabia allotting full volumes to its Asian customers. Furthermore, Vietnam saw its first quarter crude oil imports increase by 55% versus year ago levels despite the Vietnamese national oil company beating its first quarter production target of 2.6 million tons. However, Citigroup predicts oil prices will decline given a lack of evidence that the Chinese economy is in a recovery mode. In today’s action traders might be hesitant to build fresh positions ahead of extremely critical US Consumer Price Index readings tomorrow morning as that report could be a major junction for financial and commodity markets.
NATURAL GAS
While US business press coverage yesterday indicated US natural gas prices surged 9% on the day, prices are extremely low indicating the strength yesterday was not significant relative to history. However, the inability to sustain a trade below $2.00 despite the looming end to the winter demand season suggests the bear camp has lost resolve and or traders are anticipating continued records in US gas exports. Limiting the bullish track in today’s early trade are Bloomberg reports that China reexported LNG at record high amounts in the first quarter as many see that as a sign the Chinese recovery is not yet apparent. In another bearish development LNG in floating supply increased 26% last week and reached the highest level since the last week of 2022. Nonetheless, we think the risk of fresh shorts is escalating with winter demand replaced by bargain-hunting buying and attempts to refill European storage and hopefully from a vast improvement in global economic sentiment in the coming 24 hours. However, in the end the bull case remains suspect, and volatility should remain significant.
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