Written Commentary
CRUDE OIL
The path of least resistance in oil prices looks to remain down with demand fears unlikely to be eradicated easily. Therefore, the battle over supply and demand has shifted in favor of the bear camp following a chorus of recession predictions and several days of sentiment smashing declines in global equity markets. Yet another negative demand side development is hawkish dialogue from the vice chairman of the US Fed yesterday, who indicated she sees no sign of inflation moderating which leaves markets fearful of over tightening. In a minor bearish development, a senior official at the US Energy Department yesterday indicated the capacity for the US to continue to sell oil from the strategic reserve for months if necessary. The latest dialogue from the Russian president seemed to be less incendiary as he indicated the OPEC plus production cuts were not “targeting anyone”. The crude oil market should find some support from the weekly EIA inventory report (which is delayed because of the Monday holiday) as another weekly decline in US crude inventories would be the 3rd consecutive weekly decline and could be an outsized decline because of the hurricane disruption.
NATURAL GAS
Since it is nearly impossible to predict the next move of the Russian president, but several classic fundamentals are bearish for natural gas prices beyond the Russian saga. In addition to mild temperatures in Europe, a lack of serious tropical disturbances in the Atlantic and widespread expectations for a string of triple digit weekly injections to EIA working gas in storage prices are very vulnerable. It should also be noted that European storage is projected at 80% of capacity with targeting of 90% of capacity hoped for before the heating season begins in earnest. However, it should be noted that German household demand jumped significantly at the end of last month in the wake of a cold front and therefore cold weather forecasts ahead are likely to be given headline status for the bull camp. While one cannot plan for the next Russian inspired market reaction, we see the path of least resistance pointing down given the prospect of significant US inventory building ahead.
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