Demand Fears Press Prices Lower
While demand concerns are not as prevalent today as they were at the start of the week, they remain in place with reports of ongoing infection problems in China and from economic concern for many of the large energy consuming countries. In retrospect, yesterday’s API readings were bearish across-the-board with the 7-million-barrel jump in API crude oil stocks the bearish highlight of the report. From the Russian front, news is countervailing as the Russians have kept up intense bombing of Ukrainian cities, Russian oil exports last month declined by 4% and the US Deputy Treasury Secretary has indicated many buyers are “lined up” to buy extremely discounted Russian oil perhaps to avoid violating upcoming embargo rules. In a bearish Russian orientated development, the Biden administration has expressed fear that a Russian oil Cap will fail. As for the recent OPEC+ production cut promise of 2 million barrels per day, overnight trade estimates suggest the amount of oil pulled from the market may only be 1.1 million barrels per day. Fortunately for the bull camp, the EIA revised their 2022 crude output gain downward by 40,000 barrels per day versus last month’s forecast. While August Russian oil imports into Europe fell to 1.7 million barrels per day from 2.6 million barrels per day in January, the EU remains the largest customer of Russia!. After the close, the API survey showed US crude oil stocks had a weekly increase of 7.05 million barrels which was a much larger build than trade forecasts.
In our opinion, a sideways consolidation in natural gas indicates the bull case continues to deteriorate and a failure below key support of $6.728 is likely through today’s EIA working gas storage report. Expectations from the Reuters survey predicts an injection of up to 137 BCF and that follows 3 triple digit inflows in September. With the injection season likely to extend for at least 3 more weeks and the deficit versus the 5-year average narrowing every week over the last 4, supply is trending back toward normal levels. Another fresh bearish development for gas is news that gas flow from a French pipeline has started to push gas into Germany. It should also be noted that a Bloomberg story overnight indicated Europe has a large supply cushion prior to the official start of winter with inventories at 91.5% throughout the continent as of Tuesday. Critical pivot/failure/support pricing today is at $6.723 in December natural gas futures.
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