Written Commentary
CRUDE OIL
With severe demand destruction fears temporarily moderated, favorable chart action early, some residual support from yesterday’s EIA report and weakness in the dollar the bull camp has several positive themes in place early today. Fresh positives this morning include bullish price views from the Shell CEO and reports of large, long positioning bets on WTI regaining some ground on Brent crude oil. It should be noted that the WTI Brent spread at times this week surged to the widest differential since 2020. While a single week of conclusively bullish EIA data might not reverse a pattern of bearish reports over the prior 3 weeks, the markets saw supportive news from supply and demand. The most predominant demand signal for the crude oil market came in the form of the largest ever US crude oil and product export total (10.868 mbpd) on “record”.
Once again the gasoline market forged a very significant $0.10 trading range on Wednesday and spent most of the session in positive territory. While average total product demand for the past four weeks was down 2.87% from last year, the implied gasoline demand reading for the week of 9.3 million barrels per day was the 2nd highest implied gasoline demand reading this year. Like crude oil, EIA gasoline stocks fell much more than expected and are likely to fall even further given the significant 1-week 1.5% decline in the US refinery operating rate. From June 24th, the refinery operating rate has declined by 2.8% which should lower gasoline production in sync with contracting seasonal demand.
NATURAL GAS
With a 2-day trading range of $1.08, a very large two-day correction off this week’s high, and the spike above $9.00 gives off the impression of a “blow off top”. Apparently, portions of the bull camp decided to bank profits and head to the sidelines after the market failed to make a higher high following news that the Russian national gas company had reduced flows of the Nord Stream 1 pipeline further. Therefore, the trade might have been spooked by the European agreement to reduce gas consumption throughout the European Union. Until recently the Nord Stream 1 pipeline supplied one-third of all Russian gas to the European markets. The weather impact on natural gas should remain supportive given crushing heat in China and the continuation of extremely hot US temperatures next week.
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