Written Commentary
CRUDE OIL
While the much larger than expected decline in API crude oil stocks overnight (down 5.63 million barrels) contributes to the upside extension this morning, that large decline is given added credence by last week’s much larger than expected EIA crude oil stocks decline of 7 million barrels. Adding into the bullish tilt this morning is a modest 3.3% decline in European crude oil in storage, extreme heat/dryness in China (lower Hydro output), and the highest Indian crude oil imports in July in 3 months. In fact, Indian July crude oil imports jumped by 35.4% versus year ago levels and while that might be the result of bargain-hunting buying for strategic holdings, the market sees that reading as a positive demand signal in an environment where energy demand destruction has been prevalent. From a technical perspective, the bulls in the crude oil market are emboldened by a shift up in Brent and WTI time spreads and because of Brent crude oil regaining several key technical points on the upside with the overnight rally.
Given the lack of definitive upside action in gasoline in the wake of the significant surge in crude oil prices early this morning, suggests the focus of the petroleum complex is primarily trained on the beginning of the energy supply chain. A fresh limiting development this morning came from predictions that further sanctions on Russian crude oil exports will likely result in Russia attempting to ramp up diesel fuel exports. Apparently, the product markets also took comments last week regarding extremely high US refinery operating rates ahead to heart as a combination of surging crude oil prices, predictions of a 1.8-million-barrel decline in EIA gasoline stocks and two straight weeks of EIA outsized weekly declines in gasoline inventories were largely discounted yesterday.
NATURAL GAS
Natural gas prices saw an abrupt change in fortune yesterday following reports that the Freeport LNG export terminal will not return to 100% capacity until March. In other words, the inability to return to full export capacity in the US increases the potential of a backup in US gas inventories which should increase the differential between US and European gas prices. Underpinning October gas above $9.00 are comments from Putin predicting a winter gas “chokehold” will increase the odds of a peace agreement. However, to increase pressure for a peace deal will likely require extreme tightness from Russian holdbacks or colder than normal temperatures.
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