Globally, there was a significant amount of data to be released featuring GDP readings from many Euro Zone nations, retail sales from China and the United States and then Energy Information Administration (EIA) inventories later today. These economic data points are important when considering the demand factor in the price discovery of energy products.
The data out of the Euro Zone and China were mixed-to-slightly-soft with the key factors being Chinese retail sales missing its expectations modestly and German GDP suffering the same fate. This information in and of itself should not have a major effect on pricing unless it were to become more evident in a broader range of economic releases. However, with the EU and China so poised for central bank action, one could argue that slightly worse data could actually end up being a net positive for energy prices.
The International Energy Agency (IEA) released its thoughts on the energy sector overnight with a surprisingly bearish tone. Essentially, the study concluded that the demand has and will not keep pace with the supply and that the hiccup in U.S. production will be transitory. If the United States were to resume production at the pace it had at the start of the year and bring those rigs that have gone to the sideline in 2015 back online, the IEA affirms that the price war would would resume putting significant pressure once again on energy prices.
The most interesting idea from the IEA report was the shifting in the cracking supply equation. For the balance of the selloff and subsequent rally in WTI crude pricing, we have seen the supply data show over supply in the raw material (crude) and less than expected supply in the refined material (diesel, gas, etc.). This has led in recent weeks to the "tail wagging the dog" effect as the refined products fundamentals were driving the raw materials price action, particularly at the recently deflated price. The IEA sees that there has been a shift in that balance and that we are now starting and should continue to see aggressive builds in the refined products, particularly as more refiners come on line out of the spring maintenance season. This evidence has been manifested in the last several weekly inventory reports as we have seen drops in crude stocks while refined products have not seen the same reversal.
Yesterdays API report did show, however, a draw in both crude and gasoline stocks. A close eye should be kept on the upcoming EIA data for any confirmation of this pattern.
The natural gas rally survived another strong downside test through yesterday’s trade ending the day at around 2.90. Light overnight trade has left the market basically unchanged heading into the U.S. session. It would seem that at least a test of the psychological barrier of 3.00 would be in the making sooner rather than later. Resistance above there remains at 3.06 and then 3.26 respectively.