Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex saw weakness today, with ongoing interest rate trends prompting concerns that economic growth will slow in the months ahead. The potential for demand to be adversely affected continues to limit upside movement despite declining US crude inventories and recent OPEC production cuts. The prospect that flows from the Kurdistan Region will resume following an agreement with the Iraqi government last week also appeared to limit fresh buying interest amid reports that Saudi Arabia will maintain crude supply to Asian refiners despite the OPEC+ cuts, raising some questions over whether the additional voluntary cut will affect supply or whether it was designed to shore up prices. In addition, the Chinese recovery will be watched closely for its impact on petroleum demand.
Over the next week, key to the outlook will be the DOE and CPI report on Wednesday followed by the OPEC and IEA Monthly reports on Thursday and Friday. The recent consolidation in values reflects uncertainty over demand and the availability of Russian cargoes. Some reduction in availability might be apparent as the price cap on Russian crude limits additional sales. In addition, we believe US miles traveled will be impressive this summer due to pent up demand. How quickly the Chinese economy recovers will also be key to the outlook, along with how aggressively they buy crude at the higher prices given recent stockpiling. In the near term, we expect limited downside, with the 100-day moving average at 75.87 and the 20 day at 76.97 as key support, with upside potential toward 91.00 basis prompt crude during the summer.
The DOE report is expected to show crude inventories falling by 1.3 mb, distillate lower by .8 and gasoline down 1.5 mb. Refinery runs are expected up .7 to 90.3 percent.
Natural Gas
After testing the 2 dollar level again late last week, the market bounced back today and ended the session with a gain of 16 cents at 2.172. The buying interest appeared technically based as fundamentals were lacking any strong positive bent. A warm weather pattern will be passing across the US this week, bringing some locally hot temperatures, but overall below average demand. LNG flows regained the 14 bcf/d level over the weekend, but were offset by a simultaneous recovery in production to the 100 bcf/d area. With funds holding a substantial short position, the market may attempt to root out short covering over the next few days. The settlement above the 9-day moving average for the first time since early March targets 2.31 as the next area of resistance. Downside risk remains high as we head into the shoulder season with ample supplies and little in the way of weather risk. Another drop toward key support at 2 dollars could give way to a test down toward 1.80.
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