Written Commentary
Price Overview
The petroleum complex traded in a mixed fashion with early strength carrying Brent above 72.00 and WTI testing the 70.00 area. Ongoing optimism over the economic recovery in the US and Europe spurred buying interest. The market attracted selling at the higher levels on the prospect that the US might lift economic sanctions on Iran as the fifth round of talks begin on June 10th. Although some concerns remain over the delays ahead of the Presidential election in Iran on June 18th, as well as with the likelihood that they will agree to halt nuclear development, the possibility of an additional 1 mb/d of production could substantially alter deficit forecasts, particularly if OPEC goes ahead with its plan to gradually increase output.
The move toward the 70.00 level could encourage more production and competition for market share among OPEC members, particularly if the possibility of rising Iranian availability improves. Other producers such as Russia, Iraq and Nigeria have been supportive of expanding production levels in the past and might be more willing to skirt output quotas if Iranian competition moves closer to reality. The potential for an expansion of demand in Asia continues to be an outlier that could support values for now.
The DOE report on Wednesday is expected to show a decline in crude inventories of 3.6 mb, while distillate and gasoline are expected to increase by 1.6 and 1 mb respectively. Refinery runs are estimated to have increased by .5 percent to 89.5 percent.
Natural Gas
The new trading week got off to a quiet start as the July contract had an inside day on the charts before settling 2 1/2 cents lower at 3.07. Pressure emanated from a weekend jump in production, as output trended above 92 bcf/d. An issue at the Freeport LNG terminal shut the facility down temporarily on Sunday, and decreased total flows below 9 bcf/d, which added downside pressure as exports remain constrained by maintenance at multiple facilities. Prices have spent the majority of June trading between 3.00 and 3.10, which is likely maintained near term as the market awaits further signs of the summer weather trend. Early estimates for Thursday’s storage report point to a 97 bcf injection verses a 92 average. If resistance in the 3.10-3.12 area can be violated the mid-May highs near 3.20 look like the next upside target. The 3.00 level offers formidable support to any followthrough weakness.
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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