Written Commentary
CRUDE OIL
Not surprisingly, the crude oil market extended this week’s gains overnight following positive Chinese industrial production and retail sales readings overnight. With a large portion of the August and September gains in crude oil the result of tightening supply fears the prospect of improving Chinese energy demand adds to the bull case. Mitigating the improved Chinese energy demand is an increase in Chinese January through August crude oil production of 2.1% and an increase of 3.1% in Chinese August production. Fortunately for the bull camp, Chinese January through August crude oil refinery runs jumped by a very impressive 11.9% with August crude oil refinery runs up by an even more impressive 19.6% on a year-over-year basis. Obviously, Chinese refinery runs have reached a record with Chinese refinery executives potentially anticipating improved demand. In fact, Bloomberg derived Chinese road traffic indicators surged to pre-summer levels in major cities which obviously improves demand prospects.
NATURAL GAS
The natural gas market initially posted an 8-day high yesterday, but reversed aggressively as if a top was put in place. However, prices should be underpinned by reports that US daily output softened and news that Europe could be poised to post net withdrawals from storage. Apparently, warm temperatures from an Indian summer type pattern has kept demand high despite the “shoulder season”. Yet another supportive development discounted by the trade this morning is an expansion of the strike at Chevron LNG facilities in Australia. In fact, exports from the LNG facilities in Australia are pegged at 5% of global supply. While supply is not fully halted there are now plans to escalate the pre-existing rolling strikes and that should underpin natural gas prices. In retrospect, the gap in the November natural gas contract beginning at $3.075 was not closed with yesterday’s rally which according to classic technical analysis should provide support. On the other hand, modern technical analysis suggest the failure to close the gap is a sign of weakness. While the weekly injection reading was above expectations and added to the reversal from the highs yesterday, it should be noted that the surplus versus 5-year average inventory levels continues to narrow from very high levels.
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