Written Commentary
CRUDE OIL
The focus of the crude oil market remains squarely on the potential for significant energy demand destruction. On the other hand, crude oil could be seeing some minor initial support from a week over week decline in global floating crude storage of 1.65 million barrels. However, ongoing evidence of strong demand for Russian supply should mean that premium from the embargo should continue to be extracted from prices. In fact, with economic data around the world softening, a very strong dollar trend, a looming aggressive US rate hike and signs of a bearish shift in weekly EIA data that leaves the bear camp with significant ammunition. Furthermore, given the potential for the oil markets to exhibit significant washouts (and significant rallies), a swift move to and below the July low of $88.23 could be on the cards directly ahead.
The bearish outlook for gasoline remains definitive and is likely to get additional bearish fundamental news going forward. In fact, gasoline stocks in US have risen for 2 straight weeks with gasoline stocks at the critical “ARA” European hub also showing recent rebuilding. It goes without saying that gasoline demand concerns are justified from both seasonal and cyclical forces and could be dramatically reduced because of deepening global recession fear. Furthermore, traders should realize that the US refinery operating rate jumped to multi-year highs a couple weeks ago and has remained elevated and that should increase the likelihood of further weekly EIA gasoline stock inflows (especially given aggressively contracting seasonal demand).
NATURAL GAS
Clearly, the natural gas trade remains very concerned about the potential for sharply reduced or completely shut down flow from the Nord Stream pipeline. Given the Russian bombing of a key Ukrainian grain export facility almost immediately after signing a deal to cooperate on grain exports from Ukraine, increases the potential for Putin to play hardball with Europe. While some cooling demand was reduced over the weekend in US from widespread rain events, the extreme heat is expected to return to the Texas and Gulf Coast areas and that should provide speculative buying. Furthermore, the intense heat in Europe is expected to generally remain in place over the next 7 days.
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