Written Commentary
CRUDE OIL
Seeing crude oil post another higher high for the move today and the highest trade since June 23rd in the face of a distinctly bearish weekly API report readings provides some assurances the bull camp can maintain control. Surprisingly, the trade continues to see the Saudi output cut as a sustained benefit to prices perhaps because the reduction of higher sulfur oil as that concentrates tightness in one specific type of oil thereby potentially having a greater impact on prices overall. Furthermore, weekly ARA crude oil in storage declined by 3.2% and the dollar continues to plummet thereby increasing the attractiveness of US WTI crude oil on the international market. Yet another supportive overnight development came from yesterday’s US prediction of a tightening global oil market as that view joins similar views from OPEC and the IEA. In yet another bullish supply-side development the trade is beginning to believe that Russian seaborne crude flows are declining with the latest readings declining 1 million barrels per day relative to last week. The negatives discounted by the crude oil bull camp yesterday were softer US July energy consumption readings from the Department of Energy Short-Term Energy Outlook and a 290,000 barrel per day increase in US 2024 production estimates from a previous forecast. While we are suspicious Saudi Arabia will unilaterally cut production again, the markets yesterday saw a prediction that the kingdom would be forced to cut production once northern hemisphere seasonal demand turns down. After the close, the API survey said that US crude oil stocks had a weekly increase of 3.03 million barrels which was a much larger increase than trade forecasts. In the end, the path of least resistance remains up especially if risk-on sentiment remains in place after the US CPI report is digested.
NATURAL GAS
In retrospect, the bull camp in natural gas should be discouraged with the gains this week in the wake of a return of a surge in US cooling degree days, ongoing severe hot temperatures in Europe and given a strong heat wave in China. In fact, the EIA yesterday predicted record US natural gas consumption for cooling this summer and raised their 2023 US natural gas consumption to 89.02 BCF/day from 88.6 for last month. Furthermore, the EIA yesterday lowered their expectations for 2023 US dry natural gas production from 102.74 BCF/day in June to 102.35 in their July forecast. In a surprising geopolitical development Iran has apparently agreed to resume gas exports to Iraq in exchange for crude oil. With temperature forecasts out to July 15th remaining hot in the US and Europe, the path of least resistance in gas should remain up.
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