Written Commentary
Price Overview
The petroleum complex traded near unchanged levels as crude continued to respond on the upside to fear of developing tightness as demand expands in many areas of Europe and the US as motor vehicle and air travel increases. The possibility that major industrialized countries will attempt to provide vaccines to less developed areas raised the chances of a more robust recovery in Asia where demand has been significantly weaker. With stocks moving toward normal levels along with the potential for a deficit to develop as OPEC pursues a cautious return of additional output has helped limit selling interest until a pickup in production materializes.
The IEA report from Friday urged OPEC+ to increase output to meet rising demand and avoid mounting deficits as we move toward the end the year. Issues keeping supplies tight include the slow recovery in Libyan production, heavy maintenance seasons in the North Sea and Canada, and concern that shortages in steel and concrete along with governmental emphasis on renewables will limit investment decisions geared toward expanding the output of non-OPEC members.
The need for OPEC to expand output as non-OPEC producers appear unable to quickly ramp up output suggests a tightening situation, which will need to be addressed in coming months. In the absence of any move by OPEC to increase production along with slow progress toward lifting export sanctions on Iran, we suspect the market will hold support in the 66.00-68.00 level and move toward the 2018 highs near 76.90 in prompt WTI crude as stocks continue to be drawn down into the summer.
Natural Gas
The new trading week got off to a slow start as prices remained inside Friday’s range for most of the session before spiking higher late in the day. The July contract ended the day up by over 5 cents at 3.352. The weather reports coming out of the weekend kept overall demand fairly unchanged, although there were some regional fluctuations as the Midwest lost a substantial amout of heat while the South Central and West saw intensifying CDD expectations. LNG flows continued their recovery as early indications this morning exceeded 10 bcf/d, but that improvement was offset by a drop in Mexican exports to the 6.6 bcf/d area over the weekend after exceeding 7 late last week. News just prior to the close that ERCOT had issued a conservation alert flushed out some panic buying as their problems from February are all too fresh in traders minds. The continuation of last weeks strength brings the 3.40 level within striking distance, but the overbought technical condition could set up the market for a rapid selloff . Look for 3.20 to support any retrenchment..
Charts Courtesy of DTN Prophet X, EIA, Reuters
The authors of this piece do currently maintain positions in the commodities mentioned within this report.
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