Written Commentary
CRUDE OIL
In retrospect, we think the rally this week was partially the result of the noted improvement in global economic sentiment following sharply lower inflation readings and increased confidence in lower rates next year. However, the EIA report yesterday was patently negative, and it was surprising to see crude oil and diesel post gains yesterday. On the other hand, yesterday’s rallies were lost ahead of the close and crude oil this morning posted a lower low. Unfortunately for the bull camp, the US posted another record oil production reading with last week’s output pegged at 13.3 million barrels per day and that bearish supply negative was fortified following increased inventories in every key EIA inventory reading in the Wednesday report.
PRODUCT MARKETS
With the gasoline market continuing to lag crude oil and diesel rallies RBOB continues to sag in sync with US retail pump prices. In fact, last week US average retail pump prices dropped by 2.8% extending a multi-quarter downtrend. Unfortunately for the bear camp, US implied gasoline demand posted above year ago levels again and have also held above year ago levels in five of the last six weeks. EIA gasoline stocks rose 2.710 million barrels and are 610,000 thousand barrels above last year and 3.472 million below the five-year average. Average total gasoline demand for the past four weeks was up 1.9% compared to last year. Gasoline imports came in at 537,000 barrels per day compared to 715,000 barrels the previous week.
NATURAL GAS
The natural gas market continues to face a constant battle between record US production and record US exports. The problem for the bull camp is new record production readings have been more consistent than new records in LNG exports thereby providing periodic rebuilding of supply inside the US. However, overnight Bloomberg coverage indicates that European gas supplies are falling at a quicker pace than last year, and yet European gas prices continue to fall. On the other hand, early last month surveys indicated underground gas fields in Europe were nearly at capacity but have now drawn down by 11% over the last 30 days.
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