Written Commentary
CRUDE OIL
The crude oil market today is faced with mixed fundamentals as reports that OPEC+ failed to meet their production targeting by 2.9 million barrels per day in July is a major supportive supply development within an environment rife with global recession fears and expectations of energy demand destruction. In fact, Chinese apparent oil demand in July fell 9.7% on a year over year basis and economist expect Chinese demand to soften even further because of high prices/less disposable income. In addition to the weekend shutdown of natural gas flow through the Nord Stream 1 pipeline, the energy markets are supported by export reductions of Kazakh oil via Russia again because of damaged equipment.
Like the crude oil market, the gasoline market also posted an impressive rally off last week’s low of $0.19 and to extend last week’s bounce will require an improvement in the general economic outlook and perhaps strength in equity prices worldwide. However, supply influences from last week are positive with EIA gasoline stocks posting a 2nd straight week of much larger than expected declines in gasoline inventories. Even the demand side of the equation is positive with last week’s 9.3 million barrel per day implied demand reading reaching the highest level since the end of June. European demand for US fuel could pick up given that some sectors of the Rhine River are now impassable because of low water levels.
NATURAL GAS
While October natural gas faltered at last Wednesday’s high and posted a quasi-double top, that double top was clearly taken out in the overnight action with that pulse up move the result of another disruption of Russian supply flow into Europe. Taking a step back supply fundamentals should underpin prices well above last Thursday/Fridays double low at $8.86. Extreme heat in the southwest of China has resulted in power cuts but that negative demand development is discounted in the face of fresh contract highs in US futures prices. While the spec and fund contingent last week reduced their net short, the market remains significantly net short creating the potential for stop loss buying on rallies.
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