Written Commentary
Ag Market View for May 17.24
May 17, 2024
by market analysts Stephen Platt and Mike McElroy
Price Overview
Values firmed initially when the CPI showed a greater than expected slowing in price pressures. The news led to optimism over economic potential in the US on ideas the Fed will be more cautious on interest rate hikes. The strength helped move values into our expected objective range of 75-76 with a high achieved at 76.15 basis August before settling 92 cents higher at 75.75.
In the near term, resistance is likely to develop near current levels. The DOE report showed surprisingly sharp stock increases with crude rising by 5.9 mb. Although the 4th of July holiday affected export levels of crude, which fell sharply to 2.1 mb against a four-week average of 4.0 mb, the possibility that Chinese demand has declined is in the background. In addition, with values advancing as much as 6 dollars since the Saudi and Russian production cut, uncertainty over further voluntary moves past August might begin to evolve. Questions have recently arisen as to whether the production cuts are merely a means to support prices in what some members have cited as not reflecting fundamental influences, or whether demand is weaker than currently forecast given the slower than expected recovery in the Chinese economy.
The DOE report, as mentioned, showed commercial crude inventories rose 5.9 mb. Cushing stocks fell by 1.6 and stand at 41.2 mb. Refinery utilization rose sharply to 93.7 percent from 91.1 last week. Gasoline stocks were unchanged while distillate stocks built by 4.8 mb, all of which were above expectations. Total stocks of crude and products rose 17 mb. Gasoline disappearance fell to 8.8 mb from 9.6 in the prior week while total disappearance slid to 18.7 mb, unchanged from last year. Total net exports of crude and products rose to 1.4 mb from .6 in the prior week.
We see stocks declining in the second half of the year, but due to consumption issues in China and continued good availability from Russia and Iran, the decline might not be as dramatic as currently envisioned. The IEA Monthly Report is due for release tomorrow. Any sign that they are pulling back from their bullish demand outlook might undercut the current rally and lead to a setback toward the 73.00 area basis prompt crude and possibly 71.00 in the near term where support is likely to be reestablished.
Natural Gas
Prices found additional buying interest yesterday to test the 2.75 level, but reveresed course today as the August settled 9.9 cents lower at 2.632. The strength emanated from a pullback in production of over 1 bcf/d and weather forecasts that maintained the extreme heat expected into the second half of July. Today’s weakness occurred after a second attempt overnight to pierce the 2.75 level failed, bringing out technical selling that was backed up by a dip in LNG flows under 12.5 bcf/d so far this week. The failure at the 100-day moving average and settlement back below the 9-day turns near term momentum negative, with initial support near 2.60 and below there near 2.50. With record heat being maintained in the forecast, that level likely holds up in the coming sessions as the warming takes hold. 2.68 will offer minor resistance if the market recovers, with 2.75 the key target on a settlement basis.
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