Written Commentary
CRUDE OIL
In addition to the ongoing lockdown in China, the global energy demand outlook is undermined by recent massive declines in global equity markets. Unfortunately for the bull camp, seeing any slowing in global inflation readings over the next several days could be seen as a sign of slowing inflation and in turn slowing in energy demand. Other bearish forces include signs that Japan will be incremental in its enforcement of the Russian oil ban, reports that Venezuela is increasing its imports from Iran, news that the US has asked Brazil to raise oil production and reports that the largest US SPR release ever caught the IEA unaware. While we doubt the faux pas by the US administration will result in less cooperation with the IEA to lower prices, companies dealing with the IEA are less likely to cooperate to lower prices in the future.
While the gasoline market yesterday posted a fresh higher high for the move yesterday and retail gasoline prices hit record levels (average retail gasoline prices touched $4.37), the market reversed and looks to extend the downside today. Cushioning the gasoline market against aggressive liquidation is news that US European gasoline imports in the last 7-days plummeted from 5-week highs. On the other hand, consumers are becoming price sensitive, and we expect demand to falter before seasonal demand raises US consumption consistently above 9 million barrels per day. However, several analysts expect high prices to remain in place through the coming summer.
NATURAL GAS
Even the natural gas market fell victim to big picture broad-based negative macroeconomic psychology yesterday and today it is falling victim to classic stop loss selling following the massive late April and early May rally. The market is also under pressure today because of an extension of Chinese lockdowns, evidence that European stockpiles are building rapidly and because of an increase in lower 48 US production from the beginning of May. Furthermore, Russian gas continues to flow toward Europe via pipelines.
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