Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
Reports overnight that Israel had launched a retaliatory strike on Iran rallied values to as high as 85.64 basis June crude. The strength failed to follow-through with the market settling 12 cents higher at 82.22. The pullback followed Iranian comments that downplayed the severity of the attack and suggested it had failed. The appearance that Iran was looking to avert a widening of the conflict helped to lessen the risk premium.
The measured response by Israel to avoid further escalation of tensions suggested a hardening of the coalition that thwarted Iran’s attack. The group, which included the US, UK, UAE, Saudi Arabia, and Jordan proved effective at dissuading Israel from a more widespread response suggested a tamping down of tension in the region.
The question now is whether the response will lead to a de-escalation of the conflict. A key measure will be whether there are increased attacks by Hezbollah in Lebanon or the Houthis in the Red Sea. It also appears that changes in foreign policy by Iran might be afoot. Whether this leads to a broader effort at compromise among the combatants needs to be monitored, particularly as it applies to Russia’s alliance with Iran.
The potential for further long liquidation could carry values down toward the 80.00 area and failing there toward the 100-day moving average at 76.76 basis June crude. Lower prices may provide a basis for demand recovery. How OPEC+ manages these challenges should provide a source of support given their commitment to stabilizing prices.
Natural Gas
The market has managed a minor recovery since midweek, gaining 3 ½ cents yesterday and settling near unchanged levels today at 1.752 basis May. Buying interest was garnered from the storage report that showed a 50 bcf injection, which was in line with estimates but below the 5-year average of 61. Signs of cooler temperatures creeping into the 15-day forecasts also lent underlying support to an otherwise listless market that is looking for any tidbit to trade on. Resistance in the 1.78-1.80 range was tested the last two sessions, with a high put in at 1.806 today, but the gains could not be maintained. A push above there could trigger a quick test of the 1.90 area. Support arises near 1.70, with a close below there opening up the potential for a test of 1.50.
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