Written Commentary
CRUDE OIL
It is possible that the funds have turned bullish given long-term technical signals have turned bullish and the outlook for the global economy has improved enough to prompt fundamental funds to get long crude oil. In fact, even the hedge funds have boosted their bullish positioning throughout the petroleum complex despite less concern of energy price inspired inflation. However, the bull camp should be inspired by a 2.2% decline in weekly crude oil n global floating storage, talk of the strongest monthly price gain since January 2022 and from an extension of global risk on in equity markets. To a lesser degree crude oil is supported by reduced recession fears but that support is countervailed by ongoing outflows from oil ETF instruments. The crude oil market has been stellar in its ability to embrace bullish resiliency and will need to expand that bullish resiliency given the expanding overbought technical condition and the market’s return to the vicinity of a previous key high at $81.44. Certainly, last week provided a significant boost for global energy demand expectations and that optimism was expanded upon by evidence that Russia was moving to reduce its August exports by 500,000 barrels per day.
PRODUCT MARKETS
In addition to gasoline entering the new trading week significantly overbought from last week’s upside explosion the bull camp might be undermined by reports that Russia will not ban exports of gasoline as that combined with Chinese intentions to expand product exports significantly in August presents a bull market with some noted headwinds. There is no doubt about it, the gasoline market was the primary driving force of the July rally with the high to low gain carving out $0.50. Granted some of the gains last week came from a surprise refinery glitch at a Louisiana refinery, but solid weekly EIA implied gasoline demand has been present in 4 of the past 5 weeks but seasonal patterns should begin to erode soon. We also suspect a large amount of buying of gasoline was spurred by the definitive risk on sentiment flowing from US equity markets. Therefore, the bull camp needs assistance from further equity market gains and signs of good economic activity in the US and Europe. However, Chinese traffic activity readings have shown weakness recently and should be monitored closely. Unlike the crude oil market, the gasoline market net spec and fund long was high in the last 4 years range and with the gains since the last COT report of $0.13 the net spec and fund long is likely to be near the highest levels in 18 months.
NATURAL GAS
With the natural gas market turning lower last week and remaining soft through supportive smaller than expected weekly injection readings, the trade is not easily concerned about excess heat eating into a cushion of supply. While the Russian national gas company showed a minimal downtick in the amount of gas sent through Ukraine to Europe on Sunday, flows remain strong with no sign of letup. However, as the month progresses, European and Asian buyers are likely to become steady buyers as they work to fill their strategic storage ahead of the winter months. Therefore, declines below $2.50 and specifically below $2.47 should be considered value zones. The weekly Baker Hughes rig operating count showed an increase of 4 gas rigs which was the first increase in 3 months.
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