Written Commentary
CRUDE OIL
With a fresh lower low for the move overnight, and the lowest trade since August 13th, the bear camp retains control and confidence. Apparently, the trade is unfazed by reports that G-7 nations will move to impose tariffs on those purchasing Russian oil (namely India and China). Obviously, the crude oil market focus is locked on increased OPEC+ production this month and reportedly next month and that combines with growing demand fears from global slowing. However, the trade is doubtful expanded quotas will be reached. It should also be noted that independent Chinese oil refiners recently run out of import quotas and Indian refiners have begun to export record volumes of diesel to Europe. In other words, India and China appear to have finished restocking and overall refiner demand could fall off sharply. However, overnight Chinese refiners were reportedly given new export quotas which in our opinion will merely cushion the magnitude of declines in crude prices ahead. In a similar bearish development, the US Gulf Coast has seen fuel oil imports reach 2 1/2 year highs from increased Middle East suppliers which is attributable to expectations of further sanctions against Venezuela and Russia. Therefore, one could suggest that the US has also restocked various supply categories creating the potential for demand gaps ahead. Furthermore, weakness in WTI prices is not an isolated development with Dubai crude hitting 22 month lows overnight. While future EIA reports could be halted the most recent report showed the first weekly crude oil stock inventory “build” in 3-weeks which in turn left oil inventories virtually equal to year ago levels.
NATURAL GAS
While US LNG exports hosted a second straight record monthly export tally last month, US production also posted another record high leaving natural gas in an entrenched bearish oversupply condition. In other words, the slightest hitch in US export activity will directly add to the backup of supply which in last week’s weekly EIA storage report showed US inventories at a 6.1% surplus to five-year average levels. Furthermore, the US shoulder season between summer cooling demand and winter heating demand is extending beyond normal which should temper upcoming demand readings. Even European temperature forecasts are bearish over the coming two weeks with Bloomberg temperature forecasts expected to run well above 30 year average levels, which in turn means the European shoulder season should be longer than normal.
PRODUCTS
As indicated in crude oil coverage today, the world is seeing very active movement of refined products with India reportedly exporting record diesel supply to Europe. At least part of the active global movement in products is the result of two month highs in Asian distillate and diesel margins, and developments in refinery activity in India and China.
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