Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
Prices initially strengthened following the washout Monday linked that was linked to economic concerns and liquidation in advance of the Fed meeting. A stable outlook by OPEC and a constructive IEA Monthly report projecting an expansion in oil demand and marginal increases in supply for the remainder of the year provided support ahead of the DOE report and Fed meeting. The report, which showed a larger than expected build in crude inventories, initiated selling at the higher levels on profit taking and signs that after today’s pause, the Fed is looking to raise rates further and keep them higher for longer than expected. Values subsequently finished lower by 1.15 at 68.42.
The DOE report showed commercial crude inventories built by 7.9 mb in the week ending June 9th. Cushing stocks continue to build, rising by 1.5 to 42.1 mb. Gasoline and distillate stocks both showed an increase of 2.1 mb. Total stocks of crude and products, including the SPR draw of 1.9, rose 10.3 mb. Refinery utilization fell back from the high rates last week to 93.7 percent. Export levels for crude and products remained subdued at 1.2 mb compared to the 4-week average of 1.7. Total disappearance for all products was reported at 20.4. Gasoline disappearance was stable at 9.2 mb while distillate fell to 3.6 mb compared to 3.8 in the prior reporting week.
Despite the negative DOE report and potential for higher interest rates, look for support to develop on pullbacks. Steady growth in demand from key non-OECD consumers such as India and China should offset the lackluster demand in OECD countries. Consumption growth in the OECD should be supported by strong employment rates and discretionary spending. The focus on supplies, particularly from Russia and Iran, will remain a consideration while potential Saudi efforts to support values with additional production cuts will also limit downside pressures. In the background will be the cessation of SPR sales by the US and moves to begin rebuilding reserves as values move into the desired zone below 70.00. Near term the negative technical bias and Fed announcement could lead to a test of the 63.00 level, where good support should emerge and lead to a recovery back toward the mid 70.00 area as an accommodative monetary policy in China and strength to India’s economy help tighten inventory levels and underpin valuations later this summer.
Natural Gas
The market found some strength into mid-week, gaining over 7 cents yesterday and following through early today to make an intraday high at 2.39. Momentum waned into the afternoon as the July contract settled near unchanged at 2.342. Oscillating weather forecasts have pushed the market in both directions, with heat that had originally been expected in mid-June being steadily delayed, although still expected to develop into the end of the month. Production has also sent mixed signals, as weekend improvements gave way to a sharp pullback, with yesterday’s dip uder 101 bcf followed up today with early nominations indicating a drop under 100, although that likely gets revised higher by tomorrow. The settlement above the 9-day moving average is a near term positive, with resistance in the 2.38-2.41 range tested today and remaining a key level on a settlement basis. Initial support moves up to the 2.28 area, with a move below there targeting 2.136.
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