Written Commentary
We remain bearish toward petroleum
CRUDE OIL
Despite a weekly decline in Shanghai medium sour crude stockpiles of 38% and fresh overnight evidence of softening global gasoline demand. Remember earlier in the week the trade was presented with news that 3 large Aframax tankers with Russian oil were set to arrive or have recently arrived in India which is another example of Russian oil finding its way around the embargo wall. With the four-day lower low in the early going today, soft European PMI data, reports of softening traffic in 15 Chinese cities, demand destruction fear remains a fixture. Furthermore, with the September crude oil contract stopping at the $100 level early this week and violating the $95.00 level this morning, the charts in crude oil distinctly favor the bear camp. It goes without saying that energy demand destruction fears are likely to continue to populate/dominate the headlines on what seems to be an hourly basis and that is likely to continue to keep a lid on prices.
With Bloomberg noting thinning traffic in a composite of 15 Chinese cities overnight, an EU reduction in gasoline flow to the US and ARA gasoline stocks jumping back up to levels seen in 2020, the bear factors continue to surface. Therefore, precipitous weakness in gasoline prices yesterday clearly resulted from a wave of negative statistical and anecdotal evidence of softening demand. Obviously big picture macroeconomic recession fears have become a constant bearish issue, but fresh signs of soft US demand are seen from current demand holding below levels in 2019.
NATURAL GAS
In retrospect, a large portion of the market expected Russia to restart the pipeline as news of the restart produced a very modest and temporary washout in prices. However, the market likely took the restart in stride because the Russian president has indicated additional turbine maintenance might be required and there are now rumors of a delay in the return of the critical turbine and charges that Russia is using gas as a weapon. Keep in mind, overall Russian gas flow to Europe in the key pipeline remains at 40% of capacity.
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