WTI Crude Oil Futures (June Future)

Yesterday’s Settlement: 59.09, up +1.96 [+3.43%]

WTI Crude Oil futures rallied yesterday based upon the bullish catalyst backdrop we outlined yesterday. Tightened Russian sanctions are starting to happen, with the EU hitting the Dubai based trading arm of Lukoil this morning. With the US-Ukraine “minerals” deal signed, Russia is now in a tough spot.

US rights to Ukrainian minerals will come alongside agreements to provide the country military advisers, training, weaponry, intelligence, and infrastructure. Ukraine now looks like an extension of NATO in all but name. No “direct” security guarantees were agreed to, but with US commerce and military presence on the ground – it’s strongly implied.  

The India-Pakistan situation ramped up, with India launching missiles into Pakistani territory to strike terrorism suspects. Both sides have massive populations, nuclear weapons, and deep, ancient hatred for one another. This situation is worth keeping a close eye on. 

Today, Crude Oil is up +0.29 [+0.47%] to 59.38 

Traders are on edge today with the Fed concluding its meeting. Clues on how patient the Fed is really willing to be will be watched closely. We’re looking at the possibility that Powell may slow or even pause the balance sheet run-off entirely. This may appease markets enough for a risk-on move. 

Bessent announced yesterday that he will meet with Chinese officials in Europe next week to begin negotiations. Equities rallied strongly to start the night session alongside grains and crude oil, and that momentum is carrying through into the morning, albeit well off the highs.

China also announced heightened stimulus, cutting bank reserve ratios and its policy rate last night. The reserve ratio cut was more than anticipated and should unlock some needed liquidity in that economy. If trade negotiations progress well and that economy gains some steam, the global growth situation will improve drastically.

Last night’s API report showed the following [thousand bbls]:

• Crude: -4,490
• Gasoline -1,970
• Distillates +2,240

Estimates for today’s EIA report are as follows [thousand bbls]: 

• Crude: -1,858
• Gasoline -1,200
• Distillates -116
• Refinery Utilization +0.55%

Summary & Bias

Bias Summary from May 5th – 6th: 

The bearish catalyst that has kept us sidelined has now been realized. As we turn our analysis forward, the environment is chalked with bullish potential catalysts. Because of this, we shifted our bias to Neutral / Bullish the morning of May 5th on the Sunday night ~4% gap lower in futures.  

On paper, the forward-looking balance sheet looks oversupplied with accelerated OPEC hikes against a weaker demand outlook with the global economic slowdown we’re currently experiencing.

This will be the bear case, and it’s a valid case, but it uses somewhat lazy math. If you back out Iranian barrels, lower US production growth, and back out some Venezuelan barrels, the picture looks much different.

When you add in some risk-premia for potential Russian sanctions and an escalation of the Middle Eastern conflict, you get to our bull case of the mid-60s level. 

We can now add improving US-China relations to the bull case, which puts the top end of our target up towards the $70 level. We’d still advise prudence in profit-taking around the $65 level.

Technical Analysis:

June futures settled above our key 58.29-59.00** level, which should help build momentum on the bull side. We’d like to see a settlement above 59.63 today, but if we hold this support zone, it will suffice. 

There are still legitimate and institutionally popular theses to be bearish on Crude. Selling pressure will likely be apparent above $60. Futures may need to churn through some serious volume with the Fed today, and we’ll be eying price action closely. It’s important to remember that we are contrarians on the bull-side here. The path upwards may not be smooth. 

For intraday trading, our pivot and point of balance is set at… 

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