Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
Crude oil prices traded in a steady fashion, settling at 83.85 for a gain of 28 cents. Missile attacks by Hezbollah and the Houthi’s along with growing concern over attacks on Rafah by Israel injected political risk premium into the market despite the weaker than expected GDP reported yesterday. US GDP was indicated to have grown 1.6 percent in the first quarter compared to expectations for a 2.5 percent rise. Concern over inflationary trends moving in the wrong direction were in the background, with the Personal Consumption Expenditure index excluding Food and Energy rising at a 3.7 percent annual rate following a 2 percent increase in the fourth quarter. This will likely put on hold interest rate declines until later in the year The Fed monthly meeting takes place next week and expectations that interest rates will remain unchanged should help underpin the dollar.
Despite geopolitical uncertainty in the Middle East and possible disruption of supplies, which so far has not materialized, the market will be impacted by the underlying supply/demand situation. Inventories appear to have built in Europe with the key ARA region rising in the week ending April 24th by 186,000 to 6.23 MT. This is the highest level in the region since May 2023. Offsetting this increase has been a decline in crude oil afloat. Questions over the economic situation in China remain, with reports suggesting overcapacity exists in petrochemicals, EV’s and solar panels. The ability to absorb this overcapacity will be a key to the course of their economy.
The pickup in Middle East tension will provide underlying support to values near the 82.00 level with potential to test the 85.00-86.00 range basis June as the market continues to assess the inventory situation along with economic trends. Despite the market moving through the 20-day moving average at 84.01, the failure to close through there could lead to modest pressure on values early next week ahead of the Fed meeting. A move through today’s highs of 84.46 would setup a retest of the 86.00 area basis June.
Natural Gas
A test of the lows was mounted into the end of the week as the June reached down to 1.909 before settling with a loss of 6.3 cents at 1.923. The expiration of the May contract added downside pressure as it pushed below 1.50 before going off the board at 1.638, mirroring the weak action of the March and April contracts into expiration. The market continues to be constrained by a litany of negative factors. The false start by Freeport LNG has constrained exports and reignited concers about recurring issues at the plant. A substantial lack of weather demand has been a limiting factor all winter, and a recent surge in wind generation has magnified the issue. As a result of these factors, yesterday’s storage report showed a 92 bcf injection, well above expectations at 82. The overhang is a substantial 655 bcf above the 5-year average with little to indicate improvement on the horizon. Production restraint has been the only underlying supportive factor, and it will need to continue to trend downward with additional help from substantial heat coming early and often this summer to stimulate any sort of rally. Today’s retest of the contract low and poor close signals a near term violation of that area, with the 1.87 area offering the next support. Resistance rests in the 1.99-2.02 range marking the 9 and 20-day moving averages.
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