Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex saw good buying late in the session, with the crude settling 98 cents higher at 86.21 on reports the US and its allies believe a major missile strike by Iran on Israel was imminent. The news helped reverse early pressure in response to a build in US crude and product inventories. A deadlock in Gaza cease-fire talks along with threats from Iran regarding the Straits of Hormuz also deterred selling interest. A cautious tone prevailed on the upside as doubts over the strength of the Chinese economy emerged following a downgrade by Fitch to negative on their sovereign credit rating. The report cited risks to public finances as the economy faces increasing uncertainty in its shift to new growth models.
The DOE report showed crude inventories building by a larger than expected 5.8 mb. In gasoline, stocks built by .7 while distillates were up 1.7 mb. Total stocks of crude and products rose 12.4 mb. Refinery utilization fell .3 to 88.3 percent. Total disappearance levels fell to 19.2 mb compared to 21.3 last week. Gasoline disappearance fell to 8.6 from 9.2 in the prior week while distillate disappearance declined to 3.0 mb/d from 3.5. For the year to date, distillates are off 4.4 and gasoline is down .8 percent from 2023. Net exports contracted to .8 mb from 1.7 last week.
Expect setbacks to be limited, with support near the 84.00 level basis May. We are still looking for the 88-90 range to be tested on the uncertainty associated with geopolitical tension in the Middle East and the likelihood that Russia will reduce exports to levels consistent with the OPEC+ agreement. On the upside, resistance will be based on ideas that dollar strength and higher prices will temper demand, particularly from China and India. Higher prices will encourage renewed efforts to expand output by non-OPEC producers, limiting stock drawdowns later this year. The higher-than-expected increase in March CPI will also moderate US economic growth and likewise demand as interest rates remain higher for longer in 2024. The OPEC Monthly Report due for release tomorrow and IEA Monthly Report on Friday should provide guidance as we move into the 2nd half of the year and give clues as to whether an end to voluntary cuts by OPEC+ might be in the cards.
Natural Gas
The market continued to find good buying interest into midweek, gaining 2.8 cents yesterday and reaching an intraday high at 1.943 today before settling with a small gain at 1.885 basis May. Attention has been homing in on activity at Freeport, which jumped to 1.5 bcf today in early nominations, with total flows near 13.5, which would be the highest since early March if confirmed. Production has added to the upside bias, with total output dropping below 97 bcf/d as shoulder season maintenance picks up. The strength temporarily pushed prices above the upper end of our recent range but found good resistance at the trendline draw from the November/January highs. Despite the strength, the market remains burdened by the overall negative fundamental picture as demand continues to be tepid and storage levels in the US and Europe maintain ample levels. Resistance will be substantial near today’s highs at 1.943, followed by the psychological 2-dollar level. A pullback will encounter support at the 9-day moving average near 1.83 and below there at this week’s low near 1.75.
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