Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
Crude oil traded higher after a test down to the 100-day moving average at 77.97 basis June, ending the day with a gain of 86 cents at 79.12. The strength emanated from continued tension in Gaza following the failure of cease-fire negotiations and increased odds of an attack on Rafah as the Israeli position hardened with the aim of destroying Hamas. Attacks by Ukrainian drones on a major Russian refinery also provided support. Chinese economic data that showed consumer prices rising for the third straight month suggesting consumer demand has improved. In addition, the market is looking ahead to the OPEC meeting on June 1st, with expectations for voluntary production cuts to be rolled over into the second half of the year. The Iraqi oil minister indicated on Sunday that they were committed to voluntary production cuts agreed to with OPEC+, which was a reversal of comments attributed to the Minister on Saturday suggesting that Iraq would not agree to any further action. They previously stated that they were committed to compensating for previous overproduction in the first quarter.
Prices could find support that tests up to the 81.50 level basis June as concerns build over Canadian wildfires affecting crude production. In the near term, the market will remain sensitive to the monthly outlooks from OPEC tomorrow and the IEA on Wednesday. A key focus will be the demand side, particularly for China and India, and whether European off-take is beginning to recover. In addition, possible rate cuts by the Federal Reserve will be monitored closely following the release of the CPI on Wednesday which could have a profound impact on the trajectory of the dollar and other risk assets.
The DOE report for release on Wednesday is expected to show crude inventories down by 1.2 mb, distillates up .8 and gasoline gaining .3 mb. Refinery utilization is expected to gain .6 to 89.1 percent.
Natural Gas
The market tested down to the 100-day moving average overnight, reacting to a weekend increase in production, before reversing course and pushing higher throughout the day session. Prices closed at the top of the day’s range, settling 12.9 cents higher at 2.381. There was not an obvious factor propelling prices, as fund short covering continued. Trade could be pricing in upside risk as long-term forecasts for the summer suggest above normal warmth. Freeport took in good volumes over the weekend, and overall flows were maintained above 13 bcf/d to add support. Resistance near 2.40 was tested today and likely gets exceeded soon. A possible target above there is a gap on the charts at 2.702 from early January. A pullback will not find significant support until the 100-day currently near 2.236 and then at the 9-day at 2.18.
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