The petroleum complex continued to trade mixed with uncertainty in crude being traced to the ebb and flow of statements between the Iranians and President Trump, along with comments emanating from the OPEC monitoring committee meeting this weekend. The rhetoric ratcheted up this weekend following a threatening tweet by the president following indications last week that he was pulling back from a hardline position and might be open to negotiations with the Iranians. OPEC’s meeting of the monitoring committee shed little light on policy past June. Saudi Arabia and Russia appeared to dominate the meeting, suggesting that they were discussing two main scenarios. The options outlined would be easing the agreed cuts by .3 mb/d to .9 mb/d, or eliminating over-compliance with the agreed cuts, which would mean an increase in produiction of .8 tb/d. Balancing inventories continue to be a concern, which is surprising given the impact that falling production and exports from Venezuela should have had on the supply/demand balance.
Product markets traded under the most pressure with gasoline leading the way as refineries move out of turnaround and potential for higher refinery utilization and production. The breakdown in gasoline and the weakness in the cracks suggests that a top might be in basis the August gasoline crack at 20.50, setting up the possibility for values to weaken down to 17.90 and potentially toward the 16.00 level as supply availability improves and the level of US exports slows in response to dollar strength.
For crude we still see the market contained in the 60.00-65.50 area until the effectiveness of the sanctions can be assessed, OPEC output levels are determined for the 2nd half of the year, and the OPEC meeting on June 25-26th takes place.
Values traded higher following sharp declines in output levels in West Virginia and the Gulf of Mexico due to equipment problems. Reports that production had fallen to a 6 month low of 86.2 bcf along with expectations for higher cooling demand over the next few weeks supported values. The equipment problems are likely to be of short term duration and production should return to the higher levels rather quickly, helping pose resistance overhead. With stocks expected to continue building by 104 bcf for the week of May 17th compared to 106 the prior week and 88 bcf for the five year average, concerns over low stock levels should continue to be pushed into the background. Any setbacks should find support near 2.60 in the active July on improving exports of LNG and slightly lower production as we head into the summer months.
Charts Courtesy of DTN Prophet X
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