Written Commentary
CRUDE OIL
It seems as if the “potential end of the war” mantra has temporarily lost its capacity to pound crude oil prices lower. Even more surprising is the fact that prices are holding despite proof that ships are transiting the Strait of Hormuz especially with Iran surprisingly cooperating with Oman on shipping routes. While not a major negative for crude oil prices yesterday’s EIA report showed an inflow of 2.47 million barrels into US storage which in turn narrows the year-over-year deficit from 22.1 million barrels to 16.67 million barrels. However, it should be noted that EIA weekly gasoline, distillate, and diesel inventories posted noted declines which could be providing support to September crude oil at the $75.00 level. On the other hand, the US refinery operating rate ticked lower but remains at high levels relative to last year and five-year average levels. While the end of the war may not become reality, and an end to the war supply threat could be partially replaced by what remains a very tight US energy supply situation
PRODUCTS
The lack of straightaway declines in gasoline prices over the prior 48 hours signals a temporary pause in the selloff, especially with this week’s EIA report showing a 1.6 million barrel inventory decline and a year-over-year deficit of 17.4 million barrels. Furthermore, EIA indicated implied gasoline demand held steady at elevated levels while US refinery activity softened. However, the gasoline market clearly has the most bullish classic fundamental argument with gasoline inventories at only 209 million barrels in historically low territory. Looking at a chart of current weekly EIA gasoline inventories versus year ago inventories and versus five-year average inventories provides a compelling bullish argument.
NATURAL GAS
Even though natural gas has managed to build a consolidation zone over the prior seven trading sessions, yesterday’s new low for the move and more losses in Asian LNG overnight leave the path of least resistance pointing down. In our opinion, today’s weekly EIA natural gas storage report will favor the bear camp again with the US surplus versus the five year average hung up around 6.4% for the last five weeks! In retrospect, seeing US injections hold up despite extremely hot temperatures sets the stage for a huge jump in US gas in storage in the coming shoulder season demand cycle. On the other hand, LNG flows into Egypt were interrupted by a drone attack of a floating import terminal and that offsets a portion of the bearish influence from the current “end of the war” chatter. As indicated in other energy markets, internal natural gas market fundamentals are likely to retain a backseat to the number of ships successfully transiting the Strait of Hormuz.
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