The petroleum complex traded in a steady fashion with values attracting fresh buying interest in response to the DOE report. The steadier tone to values initially appeared to be in response to the decline in gasoline inventories of 2.8 mb/d reported last night in the API report while crude showed a build of 2.8 mb. The sharp decline in gasoline inventories helped steady values into midmorning despite ongoing concerns over US trade negotiations between China and the US. The release of the DOE report at 9:30 ET injected renewed bullishness in crude as stocks were reported showing a decline of 4.8 mb compared to expectations for a increase of 1.2 mb. The maintenance of relatively high export levels and lower imports helped provide the basis for the decline. In products, gasoline stocks fell by .6 mb while distillate declined marginally by .2 mb. Cushing stocks built by .8 while refinery operations fell to 88.9 percent compared to 89.2 percent in the prior week and 90.4 percent last year. Product supplied in gasoline was strong at 9.9 mb/d while distillate at 3.9 mb remained weak duie to the slow pace of plantings.
With the DOE report in the background the market will likely refocus back upon the Iranian situation and the global economic prospects. Fears the trade dispute between China and the US will be extended could weigh on values on fears of slowing growth in China and the global economy. Despite the concerns over a slowdown in global growth the drawdown in stocks today along with the developing tensions between the US and Iran and associated uncertainty over the US response to reports that Iran is rolling back some of its nuclear pledges could heighten tension in the region and provide the basis for a recovery rally back toward the 65.50 area basis June particulalry given the appearance the Saudi’s are still inclined to maintain output curbs until at least the OPEC meeting that takes place June 25-26.
We still feel the abillity of the US to block the Iranians from exporting oil might be difficult but rising tension in the region could ensue and increase volatility along with risk premium. Balancing the market amid such uncertainty will be difficult for OPEC+ as the need to maintain market share as US production expands is balanced against price levels that fulfill domestic objectives.
The appearance that the bulk of bearish news surrounding record high nat gas production levels appear to have been discounted as the market begins to focus on record high LNG exports along with new capacity coming on stream by Sempra should help balance the market as cooling needs increase during summer. Current forecasts point to a sizable injection in this week’s EIA report with potential for a build of 86 bcf for the week ended 5/3 compared to last year’s build of 85 bcf and a five year average of 72 bcf. Inventories still remain over 16 percent below the five year average. The strength today should provide the basis for values to strengthen up toward the 2.68 level basis June before renewed selling develops.
Charts Courtesy of DTN Prophet X
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options ADMIS position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to. The authors of this piece currently maintain positions in the commodities mentioned within this report. Charts Courtesy of DTN Prophet X, EIA.
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