Written Commentary
CRUDE OIL
While news that Beijing will attempt to Covid test 22 million citizens is obviously a threat against energy demand, crude oil pricing this morning has managed to reject initial selling pressure. However, the charts remain bearish and any real evidence of a lockdown order in Beijing could rekindle the washout. Another ongoing outside market pressure comes from the unrelenting rally in the dollar which makes the marginal supplier of the world (the US) relatively more expensive than foreign supply. Even though the markets have been aware of strategic petroleum releases from the IEA, seeing the physical supply began to flow in May reiterates efforts to tamp down prices.
While gasoline has managed to reject a sub $3.20 trade in the June RBOB contract overnight, very strong profits from Valero in the first quarter suggests refinery activity in the US is picking up or that refinery margins are very rich and should prompt refining. Obviously, a lockdown order in Beijing (one the largest cities in the world) would immediately result in lower Chinese fuel consumption and that will likely result in an extension of the pattern of lower highs and lower lows in gasoline. While last week’s US implied gasoline demand reading posted a new high relative to recent readings, extremely attractive crack margins should be spurring additional refinery activity.
NATURAL GAS
While the natural gas market has not tracked tightly with the petroleum markets, a big picture, broad based, macroeconomic deterioration leaves natural gas in a downward bias along with the petroleum markets. While the EU continues to struggle to agree to a total Russian ban, a major Polish company has indicated they are “ready” for a full ban.
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