Oil is struggling to find direction in the aftermath of the French terror attack, worries about the French election and the direction of U.S. tax reform. Crude oil is on track to have its worst week since March even as reports that petroleum demand in the U.S. is at its best level since the financial crisis in 2008 and the likely extension of the OPEC/non-OPEC production cuts. The perception that U.S. shale oil producers will replace OPEC cuts and concerns about the direction of the global economy after a terror attack in France ahead of Sunday’s French election, is causing many traders to keep their powder dry.

In France, a militant group killed a policeman and one gunman carried out an attack that ISIS is taking credit for. The attack, ahead of Sunday’s election, is disturbing as ISIS is claiming that the shooter was one of their soldiers. The impact on the election could be profound because terror is a major issue in the campaign because of the previous attack in France in 2015. This first round election will go to find out if France can make the economic reforms necessary to get the French and Eurozone back on the right track. Marine Le Pen, the leader of the National Front and Jean-Luc Emlenton, the far-left, had been polling well but it is unclear how that will change after the attack. Le Pen and Emlenton are populists that want to shake up their relationship with the EU. Le Pen wants to bring back the old French franc, which I have fond memories of. Still, centrist Emmanuel Macron seems to be the frontrunner.

The U.S. dollar, which has been a headwind for oil, has had issues. We saw some weakness as it appears that U.S. tax reform might be put on the back burner but that changed after Treasury Secretary Steven Mnuchin said the Trump Administration will be unveiling a tax reform plan "very soon". That added strength to the dollar and helped oil that was still wobbly after the previous days sell-off.

Despite recent price weakness, we feel that the petroleum markets are only taking a pause before making a move higher. We believe that week to week gasoline demand in the U.S. is being understated and that based on the constant drop in overall liquids supply, we are already seeing evidence of tightening global supply. 

Even yesterday as reported by Bloomberg, we are seeing U.S. fuel consumption hit the highest level for the month of March since 2008. The American Petroleum Institute reported that total deliveries of petroleum products, a measure of consumption, advanced 0.2 percent from a year earlier to 19.7 million barrels a day last month. Demand increased for jet fuel and distillate fuel, a category that includes diesel and heating oil, while consumption of gasoline dropped. Distillate fuel demand rose 4.3 percent to 4.11 million barrels a day. Jet fuel demand surged 7.4 percent to 1.65 million. Consumption of gasoline slipped 1.7 percent to 9.24 million barrels a day, still the second-highest March deliveries ever.

Output of crude, which has increased each month this year, was down 0.2 percent from March 2016 at 9.15 million barrels a day. Production of natural gas liquids, a byproduct of gas drilling, slipped 2.1 percent. Still, we saw crude oil stockpiles at 533.5 million barrels at the end of March, the highest for any month since 1930.

Natural gas is holding ground even after the Energy Information Administration reported a higher than expected in injection. The EIA reported a +54 bcf change in storage, bringing the total storage number to 2.115 bcf. This compares to the +6 bcf change last year and +35 bcf change for the five-year average. April temperatures are on track to be the warmest nationwide since 1950. With Tropical activity already starting, this summer could be very bullish for gas if the warm trend continues. Look for breaks to buy some calls.