Written Commentary
CRUDE OIL
Just as the escalating fears of softening global energy demand fueled the sharp decline off the June highs, an improvement in US economic signals has prompted buying off ideas that the markets have extracted too much soft demand premium from crude oil prices. However, given disappointing overnight Chinese and German economic readings and entrenched views the Chinese economy will continue to struggle, the prospects of improving US energy demand is heavily countered by fears of softening global energy demand. In addition to significant overhead consolidation resistance in crude oil evidence of softening global demand fears were noted overnight following talk that Saudi Arabia will keep the price of Arab light crude unchanged to Asian customers for August delivery. While it is unlikely the Putin regime will come to an end quickly, the odds seem to have increased this week and it is possible that a portion of the 2nd half of June declines in crude oil prices were the result of subliminal market fears of a freer flow of Russian oil to the world market if sanctions were removed.
PRODUCT MARKETSIt appears that the gasoline market has regained its leadership role within the petroleum complex with a 6-day high overnight which has been forged despite a 2.6% increase in weekly ARA gasoline stocks, a setback from record high Chinese traffic activity and in the face of a weekly inflow to EIA gasoline inventories. However, US implied gasoline demand remains very strong and should remain very strong over the coming week given another significant US driving holiday. A somewhat supportive long-term development is the 5-week low in the US refinery operating rate as lower production of products in the face of a seasonal demand bulge should offer supportive weekly inventory reports in the coming weeks.
NATURAL GAS
Despite European gas prices likely to post the biggest monthly gain in 11-months, lingering supply reductions from Norway and a return of hot European temperatures, the washout in US gas prices yesterday morning flips the charts bearish. On the other hand, forecasts for a return to hot temperatures in the US into July should help discourage some sellers. Furthermore, this week’s EIA working gas in storage report posted a smaller than expected injection, and perhaps more importantly the EIA narrowed the surplus storage level versus the five-year average. Unfortunately for the bull camp, the surplus to the 5-year average stocks remains very bearish at 14%.
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