Written Commentary
CRUDE OIL
In the coming trading sessions, determining the trend will likely be extremely difficult and could be determined by outside market forces. Obviously, the fear of European, UK, and US recession are front and center which in turn undermines energy demand prospects. Fortunately for the bull camp global crude oil in floating storage over the last week declined by 7.8% with the biggest declines seen in the US Gulf Coast and the Middle East. In fact, OPEC+/Saudis threatening to cut production combined with residual demand fears should give the bear camp the edge to start the trading week. However, threats against supply have been surfacing quite frequently and we suspect Middle East producers will increase those hold back threats if October crude oil falls back down to $85.00.
While the gasoline market rejected a major spike down move below $2.60 at the end of last week, the violation of a key chart support level, a relatively high refinery operating rate and the passing of the last major summer driving holiday of Labor Day ahead will probably result in a softening of physical and speculative buying gasoline. Furthermore, with the net spec and fund long positioning sitting 20,000 contracts above 2 weeks ago levels, gasoline is likely to exhibit more downside action like last Friday.
NATURAL GAS
As in other energy markets, natural gas prices flared up aggressively on Friday and then failed from that effort. The natural gas market should be supported following a media feeding frenzy off projections of the pain from energy costs in the coming winter. The markets are also supported from a continuation of ultra-hot and dry conditions in portions of Europe China and Japan. In a potential major negative development, German officials are indicating their effort to fill up strategic storage is proceeding at a faster pace than anticipated. German officials predict that the goal of 85% of total storage capacity will be achieved by October but could be achieved sometime in September. We suspect other European governments are attempting to build similar buffer stocks, and therefore buying by European sources is likely to cushion natural gas price declines.
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