Written Commentary
by Stephen Platt and Mike McElroy
Price Overview
The petroleum complex traded in a mixed fashion with crude up 1.95 at 109.57 while heating oil and gasoline showed losses on high refinery utilization and demand concerns given their sensitivity to the US economic cycle.
The strength to crude continues to reflect global supply issues with OPEC+ revising its projected oil market surplus in 2022 to 1 mb/d from 1.4 mb/d previously. The Joint Technical Committee prepared the report ahead of the OPEC+ meeting scheduled for this Thursday, June 30th. Additional support was generated by reports that Libya’s National Oil Company might need to halt exports in the Gulf of Sidra within 72 hours amid political unrest that has also affected domestic production. Talk that G-7 members were considering additional sanctions along with a possible price cap on Russian oil attracted buying interest into crude as well.
The weakness to products along with reports of a resumption of Iranian nuclear talks and lingering concerns over a global recession appeared to limit the upside. Supply expansion in the US was also a limiting influence on crude given the recent expansion in rig counts and reports that shale producers are returning to some existing wells and re-fracking, a process that re-injects pressure into aging wells to lift output. This method can be as much as 40 percent cheaper than a new well and can double or triple output from aging wells in a shorter time than drilling a new well. Currently US production is about 1 mb/d below the peak of 12.8 mb/d reached in early 2020.
The EIA weekly storage report continues to be delayed due to technical problems. Look for upside follow through to find initial resistance near 111.00 and again in the 115-116.00 range while trendline support lies near 102.00.
Natural Gas
An overnight test of last Friday’s lows failed to gain momentum as the market traded uneventfully for much of the session. Afternoon buying interest that appeared to be technical in nature due to the oversold status of the market lifted prices to close with a gain of 26.6 cents at 6.546 basis August. Fundamentals were mostly negative as production saw improvement over the weekend to the 96 bcf/d area, exports continued to hobble along in the absence of Freeport, and forecast updates lead to minor demand decreases. Early estimates for this weeks storage report point to a 72 bcf injection which would be in line with the 5-year average of 73. Another build above expectations could force a repeat run at the 6 dollar level, which likely offers formidable support. With the settlement through the 100-day moving average near 6.50, upside followthrough will find limited resistance until the 6.85 area.
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