Written Commentary
by Stephen Platt and Mike McElroy
Price Overview
The petroleum complex traded to the upside with crude gaining 80 cents per barrel while ULSD was up 9 cents and gasoline higher by 4 cents basis July. The market appeared to lack fresh news as economic uncertainty continues to pose a bearish backdrop to values while prevailing stock levels offer support along with potential for additional tightness in Russian supplies. For the most part a pick-up in gasoline demand has been priced in, limiting strong movement in prices. The appearance that the EU will not phase in a full embargo of Russian oil has also softened longer term bullish sentiment.
The DOE report came in generally as expected with the exception of refinery utilization, which rose to 93.2 percent. Commercial inventory levels showed crude down 1 mb, as 6 mb was released from the SPR, while gasoline inventories declined .5 mb and distillates rose by 1.7. Total stocks excluding the SPR rose .7 mb. Net exports of crude and petroleum products expanded to over 2 mb as product exports surged to 6.3 mb with distillate accounting for 1.1 of that. The strong export levels along with the shift to a crude slate slanted to gasoline as we move into summer might have accounted for the strength in the 2 oil cracks. In the next few weeks disappearance levels, particularly for gasoline, will be watched closely.
Natural Gas
The market shot through the 9 dollar level early in the session to put in an intraday high at 9.437, but couldn’t hold the gains as the July closed up 15.7 cents at 8.993. With specs still net short, we likely saw some stop-loss buying on the surge to the highs as volume spiked as well. Fundamentals remain supportive, as production continues to be unable to perform in a steady fashion as output dropped today due in part to planned maintenance. Exports remain near capacity and will keep a bid under this market until a consistent increase in production materializes. Their continues to be talk of double digit pricing this summer and the market gives every appearance of being talked into that conclusion. The failure near 9.50 creates decent resistance, but a settle through there is likely followed by a quick test of 10 dollars. The poor close and failure to settle through 9.00 portends a near term retrenchment that could quickly test the 8.20-8.25 area.
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