CRUDE OIL
While crude oil has lost upside momentum this morning, we do not see a reversal. In fact, prices are holding within a tight early range and within striking distance of reaching a new 9-month high, highlighting entrenched bullish sentiment. The mild “risk off” mood throughout global markets may have fueled a minor wave of profit-taking which has put crude oil under pressure this morning. However, it is clear the trade remains fixated on the prospects of reduced production from Saudi Arabia and Russia. There was a short-term surprise bullish development from reduced Nigerian exports with Shell suspending loadings following a potential leak at their export terminal yesterday. While not a major reduction in supply, the EIA indicated in their latest statistics US crude oil production declined by 15,000 barrels per day in May versus April with that production of 12.6 million, the lowest since February. The EIA also indicated products from crude oil/petroleum increased in May to 20.7 million barrels per day or the highest since August 2019. Therefore, the demand for US crude oil for products is strong and global supply remains tight thereby leaving crude oil with the most supportive near-term structure.
PRODUCT MARKETS
Despite reports of softer Indian gasoline demand because of excessive heat and from flooding, gasoline prices have remained firm this morning. However, a fresh negative supply influence surfaced from China where it is expected the Chinese 2023 full year fuel export quota will be larger than last year. Not surprisingly, the gasoline market lagged crude oil with most of the bullish supply and demand forces supportive of crude and bearish toward gasoline to start the trading week.
NATURAL GAS
The tight coiling continues in the natural gas trade with previously forecast extreme heat in the US tempered and the market presented with bearish US production stats for the month of May. Lower 48 state US gas output increased by 0.6% in May versus the prior month and up 5.8% versus year ago levels. Given that significant increase versus year ago levels, it is not surprising US natural gas storage remains more than 13% above 5-year average levels. However, US natural gas exports remain strong with Freeport LNG exports returning to full capacity. The EIA has predicted a record amount of natural gas exports the first half of the year. It should be noted that the Freeport outage was overcome by other facilities with the first record posted in April 2023 at 14 bcf/day.
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