Is Natural Gas Resuming its Downtrend as Crude Oil Watches the OPEC+ Summit for Indicators?

Crude Oil: Boxed in a range

Investors applauded a weekend agreement in Washington to raise the government's debt ceiling, perhaps preventing a disruptive government default, while crude oil recovered some of its losses from the previous week.

Notwithstanding remarks made late last week by Russia's Deputy Prime Minister Alexander Novak that OPEC+ was unlikely to adopt additional measures to adjust output levels at its meeting on June 4, oil has managed to maintain its recovery. This came as Saudi Arabia's Energy Minister Price Abdulaziz bin Salman warned investors to "look out" for pain, indicating that the organisation was getting ready to reduce output.

Although the US Federal Reserve is anticipated to raise interest rates further at its meeting in June, demand worries resulting from China's uneven post-Covid rebound may limit oil's upside. With no rate decreases expected until the end of the year, the market is pricing in a 60% likelihood of a 25-basis-point Fed rate hike on June 14 compared to a 17% chance a week ago.

On technical charts, crude oil's continued hold above 64.00 may indicate that it has finally given up after a multi-month fall. See "Crude Oil Extends Fall in Asia: Is This Capitulation?" from May 4 for more information. The downward trend has not yet shown any signs of reversal, though. In order for the negative pressure to ease, oil would need to rise above the April high of 83.50. The easiest route is down or sideways till then.

Due to milder US weather and an increase in Canadian natural gas exports to the US, natural gas prices fell dramatically on Friday before recovering modestly on Monday early in Asia.

According to reports, the weather in the Lower 48 States will change from being cooler than usual to from May 26 to May 29 to largely normal between May 30 and June 10. Wildfires led Canadian producers to reduce their natural gas supplies to the US earlier this month. Yet, exports last week seemed to be returning to the pre-wildfire levels.

However, falling drilling activity due to oversupply conditions and stricter financial conditions may restrict the decline in natural gas prices. For further information, check the May 22 articles "Natural Gas Week Ahead: Base Building May Have Begun" and "Natural Gas Price Recovery May Extend; What's Next For Crude Oil?"

Technical charts indicate that natural gas prices could rise further, possibly towards the March high of 3.03, as long as they remain above the February low of 1.97. See the April 11 article "Natural Gas Price Setup: Downward Pressure is Abating."