Written Commentary
CRUDE OIL
We are surprised September crude oil has not forged a fresh lower low for the week with economic sentiment deteriorating from scheduled data and from ongoing hawkish statements from various US Fed members. Furthermore, OPEC+ sources think OPEC+ is likely to extend its recent pattern of “allowing” more production to return. However, the bear camp is supported by the reality that OPEC+ production has not kept pace with incremental increases in the output ceiling. The prospect of higher production is accentuated by Saudi interest in a boost in production from the meeting during today’s trade. Other bearish developments overnight included ongoing evidence of recovering Libyan oil exports and a surprise inflow of 2.2 million barrels in API crude oil stocks for the week ending July 29th. On the other hand, OPEC has reaffirmed its view that demand for oil is rising slower than anticipated.
Gasoline prices saw support yesterday from signs of improved demand in Spain, and from Marathon Petroleum views that US gasoline demand remained “resilient” through the recent quarter. However, the generally upbeat Marathon gasoline demand view is probably the result of strong seasonal consumption which may now be dissipating. Even though sustained and even lower retail pump prices will be needed to foster improved demand, it should be noted that average retail gasoline prices have declined by 3.6% relative to week ago prices. From a technical perspective, the aggressive rejection of $2.90 early this week could indicate a temporary value zone at that level.
NATURAL GAS
Recent news of record US gas production and significant damage on the charts from yesterday should keep the bear camp confident in today’s action. However, the critical “Nord Stream 1 gas turbine” is still sitting in Germany, and that should provide some support to gas prices in the near term. It should also be noted that the Germans are blaming the Russians for not accepting delivery of the turbine and the Russians are indicating the terms of the contract for the return of the turbine have not been satisfied. Other supportive forces facing the trade today include French intentions to have their strategic gas supply “filled up” by November and reports from US utilities of record gas consumption. Recent broad-based extreme heat throughout the US has moderated slightly, but temperatures are likely to remain above normal.
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