Energy Cable #59: More fuel for energy bulls?
Focus on OPEC’s continued production cuts into a story of bouncing growth which sets up a tasty story for crude and maybe also natural gas! Read why here!
Take aways:
Another green week for natural gas
Bullish demand/supply outlook for crude
Seasonality will now be working in favor of crude
Israel Hamas-Ceasefire a little less impactful for crude now
Before we get to the OPEC supply cuts and crude, we would like to address our natural gas position from a couple of weeks ago. Our timing has been very fortunate with the position, as the market realized that we were trading too low. As we predicted, the low prices act as a natural constraint on supply as seen most recently by EQT Corp. cutting production due to low prices.
We continue to like the position and note there is room for managed money to start catching onto the trade since positioning data from the CFTC only show net shorts being scaled back a little.
Should shipping activity in the Panama- and Suez canals pick up from current abysmal levels (it cannot get any worse), we also see the regional abundance of Nat Gas in the US fading due to rising exports.
Chart 1: Henry Hub continuing its tear
The OPEC+ members have allegedly agreed on extending their production cuts throughout Q2 which sets up a very interesting supply/demand balance over the next three months over which global PMI numbers look to be rebounding while OPEC will continue to tighten the screws.
Using the ISM orders to inventory ratio, we see that the ratio is on the rise, which typically means increasing OPEC production volumes to match the activity levels, but given the continued supply cuts, we are likely staring directly into a pretty decent supply/demand imbalance in Q2.
We have been flagging the potential risks of an Israel-Hamas ceasefire to downwards price action in crude oil. While that risk is still prevalent the above demand-supply situation decreases the effects. Adding to that, it seems like OPEC is hellbent on keeping the price of oil up meaning that further cuts are not unrealistic should the market start to sell off on the back of a potential cease fire.
Chart 2: PMIs rebounding and crude production to tighten further? Sounds bullish
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