Tariff Retaliation Sparks More Demand Worries

CRUDE OIL 

Crude Oil is sharply lower this morning with the latest escalation in the trade wars. China has announced an 84% retaliatory tariff effective tomorrow after the US 104% retaliatory tariff went into effect overnight. This adds to fears of lower oil demand unless there is a resolution. The API report yesterday was bullish for crude, but that offered little consolation. The report showed US Crude stocks were -1.1 million barrels last week versus an average expectation of +1.4 million. Gasoline stocks were +210,000 versus -1.5 expected, and distillates were    -1.8 million versus +300,000. It is difficult to envision a scenario where the EIA report this morning would have much impact on the market. Refinery runs are expected to be up 0.5% to 86.0%. Saudi Arabia could be seeing an opportunity to gain market share with the collapse in prices. Last week OPEC+ agreed to raise its official output quotas 411,000 barrels per day in May, and Saudi Arabia cut prices to Asia over the weekend. A Russian Foreign Ministry spokeswoman said today that Ukraine continues to strike Russian energy infrastructure on a daily basis, which is  in violation of a U.S.-brokered 30 day moratorium on strikes on energy infrastructure.

NATURAL GAS

May Natural Gas fell sharply overnight in reaction to the latest retaliatory tariff announced by China. There had been some hope that by committing to buying more US LNG, some nations may be able to reduce their trade surpluses with the US and negotiate a lower tariff rate. However, US LNG exports are already strong, and to this point have been limited only by the US LNG export infrastructure. On the other hand, strong LNG exports may be helping lift gas prices off their lows today. The Midwestern cold snap is expected to make way for a warming trend into next week. Some colder than normal weather shows up for the Great Lakes in the 6-10 and 8-14 day, which could allow for some above normal heating demand in some regions, and much above normal temps in the southwest could boost early cooling demand. For the inventory report this week, the early Reuters poll calls for natural gas supply to show a net injection of 44 to 58 billion cubic feet last week, with an average guess of +47 bcf. The five-year average change is +24. As of last week, storage was 3.9% below the five-year average.

PRODUCT MARKETS

The product markets are sharply lower this morning in reaction to the latest escalation in tariffs. The API report yesterday was a bearish for RBOB and bullish for ULSD, but that was ignored by the market. API gasoline stocks were +210,000 versus -1.5 expected, and distillates were -1.8 million versus +300,000. The EIA report today will probably be ignored as well. Nearby ULSD has managed to just hold above the 0.618 retracement of the rally from the pandemic low to the 2022 high

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