Written Commentary
CRUDE OIL
Overnight reports suggest that to rekindle demand from Asian refiners will require even lower prices for crude oil. While the crude oil market managed to reject a spike down/new low for the move yesterday, the presence of demand destruction fear is omnipresent. However, news that the Chinese national oil company (Sinopec) was “outbid” for some East Siberian Russian oil should be a sign of residual global demand demand. With India remaining the largest Russian buyer of oil and given news of 3 cargoes moving toward India, some of the recession pressure on crude oil prices is moderated this morning.
High frequency traffic data from Bloomberg news from China adds to US signals of declining global fuel demand. In fact, there have been many reports over the last week signaling significant softening US demand for gasoline, EIA gasoline stocks have increased in the last 2 weeks and with the US refinery operating rate very strong, conditions are ripe for even further builds in weekly gasoline inventory levels and the eventual elimination of the year-over-year gasoline stocks deficit.
NATURAL GAS
With the sharp upside extension again overnight, the highest price since June 13th, and fresh restrictions of supply flow to Europe from Russia, more gains are likely directly ahead. With extreme hot temperatures moderating and restricted to Texas for now, the focus of the trade has likely shifted back to the Russian pipeline situation. However, it should be noted that in the last week, US cooling degree days came in at 24 degrees above normal! Yesterday the Russians announced they would reduce flow of the recently shuttered pipeline to 20% of capacity. In mid-June the key pipeline was at 60% of capacity and was at 40% of capacity following its restart last week. When one adds in ongoing aggressive efforts to build winter storage throughout the Euro zone, it is unlikely that global demand for gas will moderate ahead.
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