Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
Crude oil settled higher by 61 cents at 78.99 after briefly penetrating the 100-day moving average on the downside at 77.78 early in the session. The weakness was linked to yesterday’s API report that showed a build in crude inventories of 509 tb. It was also a reaction to the EIA cutting its forecast for 2024 world oil demand growth and its upward revisions to output. The potential for a balanced market limited buying early in the session, but an aerial bombardment of a section in Rafah, the refusal of a ceasefire agreement by Israel, and news that the US had halted a shipment of bombs to Israel added background support.
The DOE report showed crude inventories fell by 1.14 mb compared to expectations for a draw of 1.1. Gasoline and distillate inventories built contrary to expectations, rising by .9 and .6 mb, respectively. The build in product inventories kept pressure on the cracks, particularly in gasoline, where demand is off 1.6 percent so far this year. Total stocks of crude and products fell 2.1 mb. Refinery utilization rose to 88.5 percent for an increase of 1 percent versus last week. Total disappearance was 20.3 mb against 20.4 mb last week. Disappearance levels for gasoline will be watched as we move into summer to gauge how strong the seasonal increase will be given the increase in usage of EV’s and greater gas efficiency. Net exports in the latest reporting week rose to 2.2 mb.
Today’s reversal from early session losses could suggest a drying up of selling interest at the lower levels and a well-balanced market that could justify a move back toward the 81.00-81.50 level basis June. The EIA report does suggest further erosion in demand growth to 920 tb/d from 950 previously. Subsequently, the OPEC+ negotiations on June 1st will be watched closely regarding the extension of voluntary cuts. The cartel is expected to rollover the cuts due to the fact that supplies have not tightened appreciably since the beginning of the year and on uncertainty over demand growth.
Natural Gas
The market saw an inside day on the charts yesterday, but still managed to eek out a small gain of 1.2 cents to record a fourth straight session of higher closes. Today’s initial action was firmer, with a new high for the move achieved before prices pulled back to close with a loss of 2 cents at 2.187 basis June. The underlying firmer tone has eminated from steadily lower production and return of Freeport LNG flows. The strength has been contained by the substantial supply overhang as total stocks currently stand 642 bcf above the 5-year average. Freeport’s ramping has also been offset my maintenance at other terminals as total flows have stalled in the 12.5 bcf/d area. The last three sessions have tested the 100-day moving average currently at 2.246 but have failed to settle through it. Signs of warmer weather will need to surface to push above that area and open up a chance for a summer rally. The next resistance beyond that level is near 2.40, which was the high from early March. Support will emerge on a pullback to the 2.14 area, and then at the 9-day moving average currently at 2.033. Tomorrow’s strage report is estimated to show an 85 bcf injection, near the average for this time of year at 81.
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