Written Commentary
CRUDE OIL
Apparently, the energy markets remain bearish toward demand prospects as the August crude oil contract overnight forged a downside breakout in the face of very positive US scheduled data yesterday and in the face of the latest promises of stimulus from China. However, an avalanche of rate hike threats from global central bankers overnight and signs of an increase in Iranian production have added fresh bearish concerns. Fortunately for the bull camp, the API yesterday posted a 2.4-million-barrel decline in crude oil inventories, a decline in gasoline inventories and reports from Bloomberg overnight posted global jet fuel demand forecasts for July, August, and September to reach post pandemic highs. Other supportive developments initially discounted by the trade today include predictions that Indian purchases of oil are reaching the capacity of Russian supply and reports that US imports of Canadian crude oil by rail have declined to the lowest levels since September 2020.
PRODUCT MARKETS
Relatively speaking, the gasoline market continues to hold up significantly better than the crude oil market. In fact, August gasoline has built a respectful shelf of support around $2.40 with a key pivot point today seen at $2.3901. This week’s Reuters poll projects EIA gasoline stocks to decline by a minimal 100,000 barrels with an increase in the refinery operating rate of 0.3%. The API survey said that US gasoline stocks had a weekly decline of 2.85 million barrels which was a much larger decline than market expectations. However, the primary focus of the gasoline trade today should be the weekly EIA implied gasoline demand reading as yesterday’s improvement in global risk sentiment combined with another strong implied gasoline demand reading (above 9.3 million barrels per day) could be a catalyst for gasoline to diverge with crude oil and regain the $2.50 level. Like the gasoline market, the diesel market has also held up better than the crude oil market in the June correction possibly because of market sentiment toward diesel began to improve several weeks ago, and perhaps because of very solid expansion of global air travel.
NATURAL GAS
In retrospect, the lower trade in natural gas yesterday was a potential sign of an impending corrective slide. In other words, seeing prices soften in the face of very positive US data, surging southern US cooling demand and a flurry of long-term natural gas purchases by Asian customers indicates a lack of bullish resiliency. In fact, prices are minimally higher this morning despite forecasts that extreme heat in the Gulf states is likely to migrate to the North and East.
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