Written Commentary
CRUDE OIL
While some of the bullish news from overnight was already known or anticipated by the trade, seeing Saudi Arabia overnight indicate it was extending its unilateral/extra 1 million barrel per day production cut, they also indicated the cuts could be “deepened” if necessary and that was likely behind positive overnight action. Certainly, strength throughout global equity markets and news that Russia will cut crude exports by 300,000 barrels per day in September added to the upward tilt. The energy markets yesterday posted lower-low action and extended their corrective track before bouncing and crawling back into positive territory. Even more surprising is that Brent crude futures managed a recovery late in their trading session, suggesting the bullish turnaround was not a US centric event. A bullish development came from Australia where they reported Asian crude imports in July reached a record level with the region’s 2 biggest consumers China and India extending a pattern of very large purchases of discounted Russian oil. While crude oil prices into the recent highs reached cap pricing, we suspect that China and India will continue to have little regard for the sanction’s rules against Russia. It should be noted that Chinese buying accounted for a large portion of the strong Asian demand figures. It is a powerful enticement to buy crude oil well below the established world market price. In the end, the crude trade should be impressed with the resiliency of crude oil prices after this week’s washout!
NATURAL GAS
Proof of the bear control in the market was on display yesterday as another smaller than expected weekly injection into EIA storage was barely enough to spark short covering after declines this week of $0.25. In fact, the surplus to 5-year average inventories posted a notable decline but remains burdensome at 12%. Over the last four weeks, natural gas storage has increased 120 bcf. However, seeing the smaller than expected injections over the past 2 weeks might indirectly be a sign of strong demand as there have been some US export slowdowns attributable to problems with export facilities, and yet US inventories have not backed up. Other bearish influences for natural gas today are reports that renewable supply in Europe has reduced demand for gas but fortunately for the bull camp reports of strong Asian LNG purchases helps to thicken consolidation low support at $2.457. Yet another sign the natural gas market is not sensitive to bullish developments, gains yesterday were limited despite the Ukrainian state gas transit company indicating that Russian natural gas shipments were at 34.7 million cubic meters Thursday versus 42.4 MCM on August 2nd. While the setback in flow might be temporary and mechanical in nature, a string of lower flows will likely result in gas prices climbing.
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