Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
Crude oil prices failed to respond to a constructive DOE report. Instead selling developed with the June settling off 55 cents at 82.81. The Middle East situation continued to be assessed, with reports suggesting that both Iran and Israel consider the current operations concluded, with no follow up action required for now. An Israeli attack on Rafah is still expected but has been delayed in order to minimize civilian losses. The perceived de-escalation of the tension has helped moderate risk premium. In addition, the damage to Russian refining facilities from Ukrainian drone attacks is expected to lead to an increase in Russian crude export levels due to lower refinery throughput and to compensate for the lower product exports expected. In the background were reports that growth in the US manufacturing and service sectors had slowed in April while the dollar and interest rates maintained a firm tone.
The DOE report showed crude inventories falling by a larger than expected 6.4 mb. Gasoline inventories fell .6 mb compared to expectations for a 1.4 mb draw, while distillate inventories unexpectedly built by 1.4 mb compared to expectations for a draw of 1.8. Total stocks of crude and products fell 3.8 mb. Refinery utilization rose .4 to 88.5 percent. Total disappearance rose .3 to 19.5 mb. For the year, total disappearance of products supplied is unchanged with gasoline off 1.4 percent and distillate down 4.3 percent. Total exports of crude and products surged in the latest reporting week to 3.6 mb with export levels for the year-to-date 42 percent above year ago levels of 2.4 mb/d.
The lack of attacks by Hezbollah and Houthis has helped lower the tension level in the Middle East. Other factors including a recovery in Libyan output from outages earlier this year and an increase in US exports of light crude to Europe have helped weaken crude differentials for light oil. The strength to the dollar has potential to weaken demand growth overseas. The tamping down of tensions leaves open the potential for a test of the 80.00 level basis June. Resistance appears to rest overhead at the 20-day moving average at 83.80, which was also near today’s high.
Natural Gas
The recent push higher ran out of steam at the upper end of the shoulder season range as the June contract traded up to 2.14 yesterday and mounted another attempt overnight, reaching 2.133 before retrenching after failing to make a new high. Poor demand took the blame this time as the 15-day forecasts indicated moderate temperatures will continue. Trade also reacted negatively to a failure by Freeport to take delivery on a portion of yesterday’s early commitments, raising concerns over the restart of train 3. The pullback brought prices all the way down to a settlement at 1.979 and firmly below the 9-day moving average which was near 2.004. The next level of support at 1.96 was tested late in the session, with the contract lows of 1.907 the target below there. With the upside price range traversed multiple times over the last few sessions, there is minor resistance near 2.07 but not much else until a retest of the high end of the recent range near 2.15. Tomorrow’s storage report is estimated to show an 82 bcf injection, well in excess of the 5-year average increase of 59.
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