Written Commentary
CRUDE OIL
August Crude oil was near unchanged overnight as the market digested disappointing economic data from China and reports off lower than expected global gasoline consumption so far this summer. Chinese industrial output grew 5.6% from a year ago in May, down from a 6.7% gain in April and below expectations for a 6% gain. This followed the University of Michigan Consumer Sentiment survey on Friday at came in at 65.6 versus 72.0 expected. Reuters reported overnight that global gasoline consumption has been lower than expected so far this summer in US, Asia, and Europe, leaving refiners with large supply after they ramped up run rates in anticipation of stronger demand. For the US, this has been evident in the recent implied gasoline consumption from the weekly EIA reports. The EIA reported on Friday the US oil refining capacity rose 1.5% to this year to 18.38 million barrels per day versus the 2019 peak of 18.98 million. The Baker Hughes Oil Rig Count fell by 4 last week to 488, the lowest since January 2022. On Friday, Russia’s energy ministry said it exceeded its OPEC+ quota in May, but it did not provide production figures. Friday’s Commitments of Traders Report showed managed money traders were net buyers of 40,393 contracts of crude oil for the week ending June 11, increasing their net long to 192,735. This is near the middle of the historic range and would be considered neither overbought nor oversold. The buying trend is short-term bullish.
PRODUCT MARKETS
The report that global gasoline consumption has been lower than expected so far this summer put mild pressure on August RBOB overnight. RBOB is the weakest of the crude complex, with US supplies well above last year and approaching the 10-year average. Implied demand has been a disappointment. ULSD is better positioned fundamentally, with US stocks above a year ago but well below the average. August ULSD traded to its highest level since April 30 last week but stopped short of the 100-day moving average at 254.65. Friday’s Commitments of Traders Report showed managed money traders were net buyers of 377 contracts of RBOB for the week ending June 11, increasing their net long to 33,524. This is the smallest net long since October and is far from overbought. In ULSD, money traders were net sellers of 5,211 contracts, increasing their net short to 9,443. This is their largest net short since November 2020 but not at an extreme, and it leaves room for more selling if funds decide to increase their short positions.
NATURAL GAS
August Natural Gas gapped lower this morning on an extension of last week’s selloff, but it may find some support this as the reality of the hot weather sets in across the US. Upper 90s are expected in the Great Lakes and the Northeast this week. The 6-10-day forecast calls for above normal temperatures across the lower 48 states, except for southern Texas. Areas of much above normal temperature are centered around Nevada/Utah and the eastern Midwest/mid-Atlantic states. The 8-14-day has less intense heat but is expected to bring above normal temperatures everywhere but the northwest corner of the country. The Baker Hughes Gas Rig Count was unchanged last week at 98, which is the lowest since October 2021. The EIA inventory report last week showed a net injection of 74 bcf for the week ending June 7, which was right in line with average expectations. However, at 2,974 bcf, storage is running well above 2,618 from a year ago and is the highest in at least five years, and it may take several heat waves to eat into supply. Friday’s Commitments of Traders Report showed managed money traders were net buyers of 24,137 contracts of natural gas for the week ending June 11, increasing their net long to 40,984. This is well below the record net long of 271,683 contracts from November 2018 and indicates there is room for more buying if funds decide to increase their long positions.
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