Written Commentary
CRUDE OIL
Despite a series of indirect bearish crude headline developments overnight, crude prices remain near 5-day highs and right on consolidation high resistance of $70.00. Fresh negative crude oil price developments include a fresh upside breakout trade in the dollar, weakness in the Chinese currency requiring intervention, a break down in Brent crude oil technical readings, weaker WTI spread price action and reports of a sharp decline in Chinese traffic readings. However, with the crude oil market forging a 37-day low and rejecting that low with a strong bounce yesterday, the bear case based on deteriorating energy demand fear has likely been factored-in for now. Demand fears were also reduced by this week’s EIA report which showed a massive 9-million-barrel decline in EIA crude oil inventories which was reportedly the result of the 2nd largest US export figure ever.
PRODUCT MARKETS
Clearly, the gasoline market has taken a leadership role over crude oil, with prices this week halting the slide earlier than crude and mounting a larger 4-day rally. Obviously, the biggest supportive development from the weekly EIA report is a surprisingly large 9.6-million-barrel withdrawal from EIA crude oil stocks. However, a very strong implied gasoline demand reading of 9.3 million barrels per day means US implied gasoline demand is running above year ago levels for the last 6 weeks. EIA gasoline stocks rose 603,000 barrels and are 397,000 thousand barrels above last year and 16.075 million below the five-year average. Average total gasoline demand for the past four weeks was up 3.8% compared to last year. Gasoline imports came in at 857,000 barrels per day compared to 925,000 barrels the previous week.
NATURAL GAS
In retrospect, the natural gas market apparently put too much stock in prospects of a massive jump in US and European cooling demand for gas/LNG from recent pockets of extremely hot global temperatures. In fact, in addition to a slight tempering of hot temperatures in Europe, a large cross-section of continental US states have seen normal and in some cases below normal temperatures over the last 7 days. Furthermore, the trade probably liquidated long positions yesterday because of forecasts for extreme heat to moderate in Texas with the heat dome migrating north and east into lower population areas.
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