Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex attracted renewed buying interest following weakness yesterday in response to comments from the Russian Deputy Prime Minister Novak who indicated “that prices were approaching’ economically justified levels and that he did not expect new steps by OPEC+.” The comments, which came on the heels of warnings to the shorts in the oil market to beware by the Saudi Oil Minister appeared to raise the stakes and the level of uncertainty as we approach the OPEC meeting on June 4th. Another factor to watch is reports of a spike in COVID infections in China, which could potentially derail their recovery. Concern over the debt ceiling negotiations have been pushed into the background for now but will still be an intermittent factor.
The level of speculative short selling is certainly a point to be noted as referenced by the Saudi Oil Minister. The number of gross speculative short positions in Brent and WTI have reached levels not seen since the start of the pandemic in 2020. The recognition by the Saudi Oil Minister of these positions has injected considerable caution given that the situation is similar to the positioning into the April 2nd meeting. Whether the Saudis and OPEC+ take action will remain a source of volatility into the meeting.
The belief that inventory declines will provide steady support to values is being shaken by the pace of the Chinese recovery and recent concerns over an uptick in COVID infections. Further inventory losses, which we expect to continue given the strength to the US economy, have the potential to create a supply deficit of up to 2 mb/d during the second half of 2023 on the back of strong gasoline demand and current OPEC+ production cuts. Resistance should surface near the 100-day moving average near 76.00 basis July crude, with support at 71.00.
Natural Gas
The market broke out to the downside yesterday, losing 9 cents and following that up with a drop of 5.9 cents today to end the week at 2.417 basis July. The weakness was the result of poor demand as weather forecasts into mid-June continue to lack excitement. The recent rebound in production and recovery in Canadian imports added to the negative bias. Yesterday’s storage report showed a 96 bcf injection, which was below estimates but could garner little interest as the overall ample stocks in the face of poor demand were not a recipe for buying. The convincing move below 2.50 now targets the lows near 2.23, with minor support in the 2.31 area. Initial resistance moves to 2.46 and above there at the 9-day moving average currently at 2.55.
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