Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex saw firm trade, with the crude settling at 81.95 for a gain of 1.32 basis May. Buying interest developed in response to another drone attack by Ukraine on a Russian crude oil processing facility this weekend, along with attacks by Russia on Ukrainian energy infrastructure that has produced widespread blackouts. The attacks on Russian refineries appear to have shut in as much as 7 percent of their refining capacity. The Russian government has also ordered companies to reduce oil output from 9.5 to 9.0 mb/d in order to meet their OPEC+ production target. In addition, the failure of Hamas and Israel to reach a ceasefire agreement along with further attacks by Houthi rebels on Red Sea shipping helped magnify the tensions and also encouraged buying despite the UN Resolution for a ceasefire.
The market is likely to move in a consolidative trading range between 76-84 as strong downside initiatives are limited by the OPEC+ production cuts and modest growth in the global economy despite high interest rates and dollar strength. The Chinese economy remains a key to underlying growth trends in global crude oil demand. Tightness in physical availability has been limited as peak refinery maintenance and additional supplies from the US and Saudi Arabia have dampened the impact of Red Sea shipping delays in Europe and Africa. In addition, crude oil inventories afloat remain sizable. The supply/demand situation appears balanced, suggesting any surprises on either the supply or demand side could have a disproportionate impact on prices in the near term.
The DOE report Wednesday is expected to show crude stocks falling 1 mb, distillate increasing 1 mb and gasoline stocks off 1.8. US refinery utilization is expected to gain .9 to 88.7 percent.
Natural Gas
Weakness continued in the natural gas market, with the May registering a loss of 2.3 cents to end the day at 2.789. Weekend production levels regained the 100 bcf level, while weather forecasts saw warming compared to Friday’s outlooks. The move toward a normalization in temperatures could bring the trend of stock builds to a close, with early estimates pointing to a 31 bcf build this week compared to the 5-year average of 27. This will likely help the market stabilize, with the current negative trend likely limited to the contract low near 1.74, with exaggerated selling possibly testing down near 1.60 as negative influences including Freeport maintenance run their course. The 9-day moving average now at 1.684 marks initial resistance on a recovery, with a push above the 1.90 area necessary to flush out technical buying interest.
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