Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex continued to build on the gains of late last week. Signs that the economy remains on solid ground given the strong labor market has helped underpin valuations, with WTI advancing $1.82 and RBOB and ULSD rising 8.265 and 6.30 cents respectively. Continued improvement in the cracks and the potential for improving throughput following seasonal maintenance is also encouraging buying interest.
The complex is likely to turn decidedly more cautious ahead of the US and Chinese CPI reports scheduled for release on Wednesday. Current expectations point to an increase of .4 percent for the US month over month, compared to .1 percent in the prior month. The increase might foster concerns over an additional rate hike following the calming of those fears after the FOMC meeting last week. In China, expectations of an unchanged CPI and a year over year reading of .3 compared to .7 in the prior month might provide the basis for speculation over additional monetary and fiscal stimulus to the property and infrastructure sectors. The opposing actions will likely provide the basis for choppy trade into the reports as well as after.
The DOE release on Wednesday is expected to show crude inventories falling 1.6 mb, distillate off .8 and gasoline lower by 1.3. Disappearance, particularly for gasoline, will be watched closely as a gauge for demand into summer along with the level of refinery utilization, which is expected to gain .6 to 91.3 percent.
Look for stiff resistance near the 76.75-77.00 area as the market weighs Russian availability and OPEC cuts against a possible economic contraction in the US, negotiations surrounding the debt ceiling, and a potentially tighter stock situation into summer. OPEC is scheduled to release their monthly Oil Report on Thursday with the IEA Monthly report due for release on Tuesday, May 16th.
Natural Gas
The price recovery that started Friday saw good follow-through today despite a lack of fundamental ammunition to support it, as the June contract added 10 cents to settle a 2.238. Weather forecasts were mixed compared to Friday’s afternoon runs, but total degree days are still expected to be well below average in the two-week outlook. Production dipped near 101 bcf over the weekend, which may have been construed as a sign of increased maintenance, but LNG flows weakened as well to offset those losses. The move higher was halted at the 9-day moving average currently at 2.248, and the next few sessions could help discern whether a seasonal low has been put in. A settlement above the 9-day would be a sign that the low is in, while continued failure there could lead to another move lower as the market struggles with poor demand into the end of May. Support comes in near 2.10 and then at the contract low of 2.031. Resistance resides at the 9-day and above there near 2.32.
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