Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
Crude oil traded sharply lower on a potential ceasefire agreement in Gaza and a large crude inventory build that encouraged long liquidation and stop loss selling as key areas of support were breached. The weakness took values for June crude to a settlement of 78.97 for a loss of $2.97. In the background were fears that the Fed would keep interest rates higher for longer as inflationary pressures continue given strong labor cost pressures and low unemployment.
The DOE report showed crude inventories rising by an unexpectedly large 7.3 mb compared to expectations for a .5 mb draw. At 460.9 mb, they are above year ago levels of 459.6 mb. Gasoline stocks rose .3 mb while distillates, due to low margins, fell by .7 mb. Total stocks of crude and products rose by 7.9 mb and total 1,241.6 mb compared to 1,234.3 a year ago. Refinery utilization fell by 1.0 percent to 87.5. Total products supplied rose to 20.4 compared to 19.5 mb. Gasoline disappearance rose to 8.6 mb/d and distillate rose to 3.7 mb/d compared to 3.6. Net exports of crude and products fell to 1.3 mb/d from 3.6 in the prior week.
A Reuters survey of OPEC production levels indicated that they fell short of targeted cuts by 140 tb/d in April due to higher than targeted flows by Iraq and Gabon. Output in Iran, who is exempt from quotas, slipped from March levels that equaled a five-year high while Nigerian production and exports declined. OPEC production in April was 26.49 mb/d for a decline of 100 tb/d. OPEC is scheduled to meet on June 1st to decide its next output steps. The threat of cuts being maintained past June and the implication for stocks should limit downside follow-through given the balanced supply/demand situation. Today’s break makes a test of the 100-day moving average at 77.41 likely.
Natural Gas
After reaching an intraday high at 2.092 early yesterday, the market reversed to trade as low as 1.913 today before settling with a loss of 5.9 cents at 1.932 on the June contract. Prices continue to oscillate on minor fundamental signals as we muddle through the shoulder season awaiting signs of summer heat. On the negative side weather demand remains tepid and LNG flows continue to be constrained, with early nominations today under 12 bcf despite signs that Freeport is coming back online. Production has trended consistently lower, recently under 97 bcf/d, to slow any selloffs. At the moment the path of least resistance looks downward with multiple recent tests of the 1.91 area making it ripe for violation. A settlement below that level would find minor support at 1.87 and then 1.80. The 2-dollar area would be the first resistance on another bounce as it marks the 9 and 20-day moving averages. Estimates for tomorrow’s storage report point to a 55 bcf injection compared to the 5-year average build of 72.
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