Written Commentary
NATURAL GAS
The natural gas market managed to add to the Tuesday rally off the latest contract low yesterday, but the magnitude of the upside move was unimpressive. Looking ahead, this week’s Reuters poll projects EIA gas and working storage today to increase within a range of 50 BCF/90 BCF with the top end of that range potentially signaling the beginning of the “shoulder season rebuild”. In other words, weekly injections could begin to expand resulting in supply overwhelming demand. Furthermore, given the early refilling of strategic/winter supplies ahead of normal timing around the world, that could temper speculative buying in the face of the first US or European cold front.
CRUDE OIL
While the latest spike up seems to extend the bull case into another session, the overnight action does have the appearance of a modest blowoff top. However, the energy markets have obviously displayed consistent resiliency since the May low. Underpinning prices today is that fact that the global supply deficit will likely remain in place for the rest of the year but will narrow from the current 1.3 million barrels per day to a deficit of only 1.1 million barrels per day quarter. Another support for the bull camp came from Bloomberg Chinese traffic readings which have the posted the biggest weekly gain in two years with traffic likely to explode over the next eight days from the autumn Festival holiday. On the other hand, the explosion in prices since June is beginning to discourage some Asian buyers and therefore the Chinese economy must begin to improve or that demand source will moderate. In retrospect, the weekly EIA report was slightly favorable for crude oil and minimally supportive for gasoline and distillates.
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