Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
Crude oil continued to trade on the defensive with values settling 1.09 lower at 77.57 basis July and just below the 100-day moving average at 77.61. The weakness reflected a combination of factors which included concerns that interest rates will remain higher for longer than expected following comments by Federal Reserve Bank Governors, which would limit economic growth and potentially lead to slower consumption rates. Weakness was also garnered from the DOE report showing crude inventories building more than expected. The announced sale of 1 mb of gasoline from the Strategic Petroleum Reserve and the price decline in hard assets such as copper and gold also undercut sentiment. In the background remains ample supply availability despite OPEC+ pledges to maintain a balanced market.
The DOE report showed commercial crude inventories rising by 1.8 to 456.6 mb compared to 455.2 a year ago and expectations for a decline of 2.5 mb. Gasoline stocks declined by .9 mb and distillate rose .3 mb. Total stocks of crude and products rose 7.5 mb with continued increases in propane and other oils. Refinery utilization rose 1.3 to stand at 91.7 percent, unchanged against last year. Total disappearance for all products was 20.0 mb/d compared to 20.7 last year. In gasoline, disappearance reached 9.3 mb/d but still trailed last year when it reached 9.4. Distillate disappearance was 3.9 mb/d against 4.2 last year. Net exports of crude and products rose to 2.6 mb/d and above year ago levels at 2.3.
The pickup in refinery throughput in the US should provide background support to values. Uncertainty over the direction of OPEC+ deliberations is impeding upside movement with the loss of market share by a source of concern along with surplus capacity totaling up to 4 mb/d. Some producers are reluctant to carryover voluntary production cuts at current levels despite statements suggesting that they are united in attempts to balance the market. How the discussions play out on June 1st will be a barometer of how unified OPEC+ is despite losses of market share in key markets such as China and India and the competition from expanding output from non-OPEC producers.
Natural Gas
The rally took a breather yesterday as the most active July contract lost 6.6 cents and then traded as low as 2.786 early today before recovering to close higher by 21.3 cents at 3.052. Headlines blamed the bankruptcy of the lead contractor on the Golden Pass LNG project for the weakness as the in-service date for the facility, which is currently the first quarter of 2025, will get pushed back. A more likely culprit was a minor wave of profit taking and a slow creep up in production over the last few days catching the attention of trade. The weakness was short lived, with the market breaking out to the upside today as attention refocused on early warmth in the South Central region and longer term forecasts continuing to suggest a hot June. The July contract took out its January high at 3.02 as stops overextended the move late in the session and fund shorts likely dwindled further. There is little obvious resistance above today’s breakout. The next target on the upside is the chart gap from early November at 3.488. Support rests at the 200-day moving average currently near 2.84 and then at 2.785. Estimates for tomorrow’s storage report are pointing to an injection of 85 bcf, slightly below the 5-year average build of 92.
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