There was very little action overnight in markets across the commodity landscape. Energies remain stuck in neutral as ever tightening price discovery continues to beg for a breakout. Due to he holiday weekend, inventory data was pushed back a day.
Yesterday afternoon featured the release of the API supplies that shifted back to a familiar theme showing a better than expected build in raw material (crude) with a sharply larger draw in refined material (particularly gasoline). The past 3 weeks of bigger-than-expected draws in crude could indicate another shift in the supply picture back to the structure featured for much of 2015, with the downstream products (refined) driving the demand rather than the over supplied upstream products (crude). Today we will look for confirmation of this through the EIA data scheduled to be released at 10 am CST.
In what can most assuredly be called stating the obvious, news has surfaced through an anonymous OPEC quote that there is no chance that the world’s largest oil cartel will reduce production at its June 5 meeting. This obviously comes as no surprise as the Saudis have actually increased production and exports to the tune of 10-year highs as well as repeatedly stated that they would not pursue any production reduction unless it was a global unilateral effort. While some other significant oil producers like Russia and Venezuela would welcome a reduction in an effort to prop up the price, any action would have to be accompanied by OPEC and the United States to be effective in moving the price. It would seem that any independent action would only serve to relinquish market share. Russia is scheduled to plead its case to OPEC in the two days leading up to the meeting next week.
It appears that the U.S. shale industry is proving to be more resilient than her competitors hay have thought as we are seeing production slowly pick up again stateside. With storage capacity nearly maxed out and strict exports regulation remaining intact, we could see this supply begin to again slowly erode the price for crude, at least temporarily. The 30% recovery of crude pricing in the past 2 months has been a combination of several factors that may have played out. The reduction of shale rigs online finally had an effect on supply data in recent weeks, driving the price higher. Demand remained strong either through strong economic data or through strong central bank action refusing to stem the flow of easy money.
Finally, consumers have been flooding into the market to hedge the price action and lock in these relatively low prices for the coming year. It will be interesting to see if the antithesis of this hedge comes into the price discovery as producers most certainly must be considering hedging to the downside after the recent recovery in pricing, a move that could press prices lower.
Natural gas appears to be suffering the same fate as the other energy markets as it seems stuck between 2.80 and 3.00, coiling for a secondary breakout after rallying as high as 3.10. With temperatures starting to rise and demand naturally increasing in a seasonal move, the inventory picture should be watched closely. If producers have shifted away from natural gas wherever possible due to the low price then we could start to see some supply concerns just when the products demand is increasing. A development such as this could produce a significant rally back to the mid 3 dollar range. Inventory data is due out at its regularly scheduled interval, 9:30 am CST.