Written Commentary
CRUDE OIL
Despite a risk-off environment and a stronger Dollar, crude oil has forged another higher high. The market is also higher in the face of a negative takeaway from Chinese economic data overnight and in the face of a 2.9% increase in 2022 Chinese oil production and therefore upside action this morning is impressive. In fact, the crude oil market has also ignored lower Chinese refinery 2022 throughput. Clearly, the oil market is not buying into the negative view toward Chinese data overnight and the trade continues to embrace reopening progression in China. However, the recent rally has pumped up crude oil open interest to 6-month highs in a possible sign that bullish fuel is being consumed aggressively.
Like the crude oil market, RBOB this morning has forged a higher high for the move and has discounted negative fundamental news. As indicated in crude oil coverage today, the EU has moved to strengthen the ban of Russian fuel buying. However, the prospects of a significant jump in Chinese fuel exports later this month (because of an expected jump in margins from the European ban of Russian fuel) should prompt China to increase refinery runs. However, Chinese naphtha margins dipped overnight following soft Chinese data, but we think that will be a temporary reaction. The trend is up especially with a higher high this morning in the face of risk-off track and weak global equity market action.
NATURAL GAS
While natural gas continues to respect consolidation support fundamentals are still decidedly bearish. Over the weekend we heard from an industry expert that the Freeport facility “might be” blocked from restart because of generators throwing off formaldehyde which would clearly justify continued delays. Furthermore, weather in the US and Europe looks to be bearish and forecasts for 2023 Chinese LNG imports from April to September 2022 are expected to post a record jump in summer supply. While that news is offset by forecasts for improving Chinese gas demand from a recovery that prospect is still uncertain.
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