Written Commentary
CRUDE OIL
While the crude oil market might be overbought from the aggressive gains over the past 7 sessions of nearly $6 per barrel, the bull camp should be emboldened this morning by headlines indicating Saudi oil exports in May declined 40% over year ago levels and perhaps more importantly from Russian promises to reduce their oil export discount from $25 per barrel to $20 per barrel. In other words, the Saudis continue to do their part in tightening global supply (which they label as balancing), and Russia is likely to encourage interest in purchases of alternative supply to Russian supply given the reduction in the discount for their oil versus global market prices. Along those lines are reports that Rotterdam was beginning to purchase supply from Angola in lieu of purchases from the Urals. While not as definitive, demand for oil should be improved by another wave of stimulus promises from the Chinese government overnight. Holding back further gains in crude oil is strength in the US dollar, the lowest Indian monthly crude oil import tally in 7 months and a recovery in Alberta oil production last month. In addition to pre-existing supply tightness on the East Coast from earlier this year, a refinery outage at an Exxon Mobil refinery in Louisiana has ignited fresh speculative buying. Last week, the US refinery operating rate reached the highest level since the 2nd half of May and was also the 5th highest of the last 18 months. The prospect of increased European refinery maintenance reduces the potential for US imports of European gasoline and could firm up international demand for US refined products.
NATURAL GAS
With a quasi-triple high in the September gas at $2.75 in face of projections of 100-degree temperatures in several diverse geographic areas in the US, the natural gas trade appears to be lacking significant upside potential. In fact, the Russian national gas company continues to confirm steady gas flow to Europe and recent statistics show European gas storage levels are robust and building toward near capacity prewinter levels. Furthermore, LNG at sea on floating storage has increased by 32% over the last 20 days. As indicated already, September natural gas posted a quasi-triple top around $2.759 to $2.762, suggesting the market has run out of fuel from the 4-day rally last week. Certainly, another wave of Chinese stimulus promises, strengthening Asian LNG rates and talk of increased buying for strategic winter supply provides fresh support to prices but so far, bullish news has not sparked notable speculative buying.
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