Bullish Tilt Extends in Crude
With a higher high extending last week’s recovery and putting crude oil prices into a fresh upside breakout, the bullish tilt from last week has been extended. While there have been recent signs of softening US energy demand, signs of residual strength in Asian demand have apparently taken precedence. In another sign of residual Asian demand and Russian compliance with output reduction agreements, reports are Russian discounts on sales to China have narrowed and that should embolden the bull camp. On the other hand, the prospect of tighter supply has also been a key element of the bull case with the primary catalyst hope and recent evidence of reduced Russian August shipments. Another minimal fresh supply-side development for crude oil is a 2.2% decline in floating storage from weekly figures provided by Vortexa. Even though a slight downtick in US implied gasoline demand from 3 weeks ago is not a significant negative for crude oil, the trade is sensitive to any signs of softening demand, especially with crude oil currently $11 per barrel above the late June lows. However, Indian crude oil imports increased by 0.6% in June and Chinese import/implied demand readings keep demand as a supportive development. In the near term, if a risk on vibe remains in place, the bull camp retains the edge.
While the natural gas market will continue to get support from hot temperature forecasts, there were suspicions about the upper end temperatures forecasted in last week’s trade and some chatter suggesting heat might not entrench. In a not surprising bearish headline, the Russian state gas transit service indicated that Russian shipments of gas to Europe yesterday were up slightly from the day before. A longer-term bearish headline overnight indicates European gas storage is now roughly 83% capacity compared with the five-year average at this time of the year of roughly 68%. In the end, the Russians have not shown any sign of reducing flows despite the escalation of political maneuvering in the war. While temperature forecasts can change, forecasts as of this writing do not show US heat to be excessive, widespread or sustained and therefore the bear camp has the edge.
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