Written Commentary
CRUDE OIL
Seeing fresh new lows for the move in crude oil overnight are justified by very negative API inventory readings from yesterday afternoon, and obviously from entrenched energy demand destruction fear. Furthermore, the bear camp should be emboldened by very disappointing Chinese June crude oil imports especially with those imports the lowest in nearly 4 years. It should also be noted that the June Chinese imports of oil were 11% lower than year ago readings and 19% below the readings from May. In our opinion, the question is not will the downtrend continue but how big will recovery bounces be and how low prices will eventually fall. As in many physical commodities, crude oil has become massively oversold from a technical perspective but until demand destruction fear is moderated, the bear camp retains control.
As in the crude oil market, demand destruction expectations are expected to continue to dominate the gasoline market. Given a 95% refinery operating rate 2 weeks ago and last week’s 94.5% operating rate and expectations for a 0.3% increase in this week’s operating rate, additional product supply is likely on its way to the markets and that means supply factors are bearish. In fact, overnight gasoline, and distillates stocks both showed large inflows to API inventories! Furthermore, the gasoline market is likely to be heavily impacted by overall macroeconomic conditions today as hot US scheduled inflation data will likely result in a jump in recession fears and therefore a jump in gasoline demand destruction fears.
NATURAL GAS
With a significant range yesterday, adjustments to slightly cooler US temperatures and the inability to hold an 8-day high yesterday, the bear camp has regained an edge. In addition to demand destruction fears flowing from big picture economic conditions the natural gas market should be undermined because of a sharply lower natural gas price forecast from the EIA short term energy outlook especially since that outlook also contained projections of a buildup of US supply. The major bullish argument for natural gas continues to be trade fears that Russia will not restart the Norge Stream one pipeline after maintenance is completed.
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