Written Commentary
CRUDE OIL
Bullish resiliency continues in the petroleum markets with the entrenched tightening supply view trumping concerns over softening demand. There are indications the Russians appeared to have temporarily banned fuel exports and that could exaggerate the fear of tightness in the global diesel market which in turn should provide buying interest to the crude oil market. The crude oil market should also draft support from news overnight that Chinese onshore crude oil inventories have reached the lowest levels since June after nearly 3 months of consecutive increases. Despite the aggressive liquidation this week, global supply conditions continued to tighten, which suggests the correction this week was either demand orientated or temporary classic technical balancing. In our opinion, the energy demand outlook is clearly eroding along with declining equities, rising interest rates and disappointment over the lack of green shoots in China. However, Russia posted declines in crude production, Cushing, Oklahoma stocks are near minimum levels needed to continue operations and this week’s EIA report showed another weekly crude oil stocks decline which in turn raised the year-over-year deficit to 12.3 million barrels.
NATURAL GAS
With a new contract low price forged yesterday, key consolidation support failed and further stop loss selling is likely. In fact, with the Australian Chevron gas worker strike ended and forecasts for cool and wet temperatures in Europe, more contract low action is likely. While the weekly injection reading was not significantly above expectations and the surplus versus the five-year average continues a pattern of narrowing, the gas trade is not concerned about a slow reduction in very burdensome supply levels. The weekly natural gas storage report showed an injection of 64 bcf. Total storage stands at 3,269 bcf, or 5.9% above the 5-year average. Over the last four weeks, natural gas storage has increased 186 bcf. In addition to cooler and wetter European temperatures, US temperatures are expected to begin their seasonal decline, leaving the gas demand situation in the Bear’s camp. Therefore, the bias remains down.
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