Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex found good support, with crude recovering to end higher by 2 dollars at 76.78, gasoline up 3.74 cents at 2.5301 and heating oil up 2.46 cents at 2.3771. The strength was initiated by concerns following an Iranian seizure of a Marshall Islands flagged oil tanker in the Persian Gulf destined for the port of Houston following a collision with an Iranian ship. Despite the report, the market’s recovery is likely linked to other considerations as well. These include production cuts undertaken by OPEC+ and a rebound in Chinese demand. Although the limitation on Russian availability has been lower than expected and the rebound in the Chinese economy has been slow, we anticipate that the pace of both will pick up momentum as we move into summer and help tighten supplies. Offsetting the more constructive tone will likely be the US economy losing momentum, with the GDP number released yesterday showing a seasonally adjusted growth rate of 1.1 percent from January-March, compared to a 2.6 percent in the fourth quarter. Capital expenditures and inventory depletion were weak spots, while consumer spending remained strong.
The concerns over the US economy could remain a headwind until after the FOMC meeting next week. In the absence of a major move by the Fed to raise rates beyond the 25 basis points expected and a failure to resolve the debt limit impasse, look for economic concerns and Russian availability to be pushed into the background. Additional fiscal stimulus from the Infrastructure and Inflation Reduction Act should provide stimulus to the US economy, providing support down toward the 73.00 level basis June crude, helping underpin a recovery in the latter half of the year on growing tightness in inventory levels as the recovery in the Chinese economy bolsters Asian demand.
Natural Gas
After trading sideways since midweek, the market was jolted to the upside early this morning on reports of an explosion and fire on a Columbia Gas Transmission pipeline in Mississippi. The move was exacerbated by stops triggered between 2.40-2.45 that pushed the June to a high of 2.529. Although the ultimate effect of the problem has yet to be discerned, prices retrenched into the close as it appeared the disruption effected a small volume estimated near .4 bcf, and may be brief. The June contract settled with a gain of 5.5 cents at 2.41. Prior to the news the market had been trading lower on continued strong production and decreased LNG flows. Yesterday’s storage report showed a 79 bcf build, above estimates near 75. Despite the early strenght the market was unable to hold the momentum, ultimately settling below the 9-day moving average and keeping the near term bias negative. The 2.20 area remains initial support with a move below there targeting the contract lows near 2.14. With some of the upside cleared out, the 2.52-2.54 range becomes initial resistance, and beyond there the 2.60 level would be the next likely target as it marks a 38 percent retracement of the March-April break.
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