The petroleum complex traded near unchanged levels for much of the day before seeing weakness late in the session as the market responded to comments from the Russian and Saudi Oil Ministers, who met during an economic conference in St. Petersburg. Russian Energy Minister Novak suggested he could not rule out the possibility of prices falling to as low as 30.00 per barrel without an agreement on extending the oil deal into the 2nd half of the year. He indicated there were big risks of oversupply that needed to be monitored closely in order to make a balanced decision in July. Saudi Oil Minister Falih indicated that steps were being taken to prevent a sharp fall in prices. He suggested that on the OPEC side, a rollover of the current agreement was in the bag. However non-OPEC countries and particularly Russia were still undecided as to whether to participate in further cuts.
Ideas the market is currently balanced are largely predicated on the OPEC+ agreement and the declining production levels in Venezuela and Iran. While economic growth remains a concern given trade tensions, the expanding production in the US along with OPEC+ declining market share remain key considerations for longer term prospects. Forecasts are circulating that suggest demand might need to be revised downward by 300 tb/d.
The longer term prospects for the market remain tied to whether production can be restrained enough to offset additional wet barrels from the US. While the situations in Venezuela and Iran have certainly helped maintain the market balance, at some point this will reverse and weigh on the market.
With the preponderance of fundamentals still negative and little sign where Russia stands, good resistance should be apparent near the 55.50-56.00 area basis July crude.
Downside pressure on natural gas values appeared to have eased as bargain hunting emerged. Forecasts for more moderate temperatures were ignored as the market anticipated higher demand during the summer. Talk of more active flaring in the Permian Basin might have helped underpin values on ideas that weak prices are starting to have an impact. The lower end of our support range at 2.30 looks like it will hold for the near term. This week’s storage estimates point to a 111 bcf injection compared to the 5 year average at 92.
Charts Courtesy of DTN Prophet X
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