Friday's Strong Finish - May 13

[dan_s]

Trading Economics
Oil
"WTI crude futures rose nearly 4.1% to settle at $110.5 per barrel on Friday, the highest since March 25th and extending gains for the third straight session amid concerns of further supply disruptions from Russia. The prospect of an EU ban on Russian oil continued to buoy prices, with tensions escalating further this week after Moscow imposed sanctions on European units of state-owned Gazprom. Still, a stronger dollar and fears that high inflation, weaker global growth and China’s Covid curbs would dampen demand lingered this week. Meanwhile, the IEA said Thursday that rising oil production in the Middle East and the US and a slowdown in demand growth are "expected to fend off an acute supply deficit amid a worsening Russian supply disruption.”. < IEA is "political" and their supply & demand forecasts are "wishful thinking" IMO. I also think that China can't keep millions of people in lockdown. It is the only real reduction in oil demand and IMO it is temporary.

Natural Gas
"US natural gas futures trimmed earlier gains to trade around $7.6 per million British thermal units, pausing a 3-day rally, as traders continued to monitor the outlook for US LNG exports amid tight domestic inventories. The Kremlin sanctioned Gazprom Germania, a former Gazprom subsidiary now in control of German regulators, and the Polish grid operator which controls transits of natural gas between Belarus and Germany through the Yamal-Europe pipeline. Additionally, Ukraine has shut down one of its two entry points, further pushing the EU to rely more on US LNG cargoes for its supplies. Domestically, EIA data showed utilities injected a smaller-than-estimated 76 bcf into storage in the week ending May 6th, below the 5-year average build of 82 bcf, but production is expected to increase after the maintenance season ends. For the week, the contract is on track to shed more than 4%." < My forecast models are still using $6.00 for Q2 and Q3. Raymond James is forecasting $8.45 in Q2, $9.00 in Q3 and $9.25 in Q4. If we have a hot summer, I predict that we see HH futures for NOV22 to FEB23 trading for over $10,00 in early Q3.

Coal is setting a high floor price for natural gas
"Newcastle coal futures, the benchmark for top consuming region Asia, consolidated above the $390-per-tonne mark and more than doubled in value since 2022, supported by continued robust demand against a tightening market backdrop. Along with increasing demand for power generation with a resumption in economic activity after the coronavirus-induced slump, soaring natural gas prices in Europe and Asia in late 2021 boosted coal consumption. On top of that, Russia's invasion of Ukraine and the unprecedented economic sanctions, including the EU's ban on coal imports from Russia, have thrown the global energy market into chaos. At the same time, it also promoted a change in trade flows as the EU and Japan sought alternative supplies from Australia, Colombia, Indonesia, South Africa, and the United States. Still, soaring production from top consumers China and India should ease a global supply deficit and help cool down prices in the long term."