Written Commentary
CRUDE OIL
Big picture macroeconomic induced selling of crude oil is likely to extend especially after the critical $70.00 level was pierced straightaway this morning. In fact, with recent chatter of strong US demand dissipating, fears of softening “global demand” are accentuated. However, seeing Indian crude oil import prices from Russia decline to the lowest level of the war era that could stimulate even more Indian buying in the future. Nonetheless, energy demand fears are likely to be stoked in the coming sessions from renewed fears of a recession in the US. Even the supply-side of the equation is offering fresh bearish news today, with weekly crude oil in storage at the ARA increasing by 4.5%. Bearish sentiment toward crude oil prices is definitive with the trade this morning discounting another Iranian seizure of a foreign flagged oil tanker. Another supportive development fully discounted in today’s trade is yesterday’s much larger than expected decline in API crude oil stocks of 3.9 million barrels. Other overnight signals favoring the bear camp are a Morgan Stanley reduction in their 3rd quarter Brent oil price projections, bearish Brent/WTI time spreads and reports of very large gasoline shipments headed to the US. Furthermore, energy demand fears are likely to expand with signs of softening in the US jobs market and by another US Federal Reserve rate hike this afternoon. On the other hand, it should be noted that weekly EIA crude oil stocks have declined sharply in 4 of the last 5 weeks with the cumulative decline in that time frame totaling nearly 18 million barrels. While US implied gasoline demand readings have held above year ago levels in 5 out of the last 6 weeks and last week’s number was extremely hot at 9.511 million barrels per day, the strong US energy demand theme could be squashed if this week’s EIA implied gasoline demand reading slumps. In conclusion, it will be difficult to suddenly improve energy demand expectations and it could be difficult for July crude oil to recover back without a bullish surprise in key US jobs data.
NATURAL GAS
Even though natural gas prices recently delinked from action in the petroleum markets, current action suggests the markets might have fallen back in tight sync. Obviously, deteriorating global macroeconomic sentiment injures industrial demand for gas and given declining northern hemisphere heating demand for gas, a move to lower lows is fully justified. Recent LNG flow to Europe has reached record levels which reduces anxiety there and should have reduced the urgency of refilling. In fact, overnight news indicates European appetite for LNG imports is already softening because of “well-stocked” European storage. However, key European LNG storage levels remain far below capacity, and we suspect buyers are simply stepping back expecting even lower prices. Reports of record profits from a midstream US oil and gas delivery company from a 6% increase in pipeline throughput should also foster ideas of a backup of supply within the US system and at export terminals. We leave the edge with the bear camp and expect downside extension action in the coming sessions.
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