Written Commentary
CRUDE OIL MARKET FUNDAMENTALS
While crude oil should see support from overnight news that Chinese refinery runs are expanding with teapot run rates at record highs and with reports that Kazakhstan intends to reach its promised output cuts in the coming 2 weeks, the trade is also seeing a number of fresh bearish headline developments. In fact reports of shale producers invoking hedges, a significant jump in Chinese Shandong crude oil stockpiles (to a 7 week high) and the potential for a noted worsening of US/Chinese trade relations today seems to shift the bias in prices to the downside. However despite negative economic data pressure and deteriorating trade conditions we still see this week’s lows as solid support especially after reports that OPEC output apparently fell sharply by 6.3 million barrels per day in the month of May.
The gasoline contract damaged its charts again yesterday with a 7 day low, and we suspect that very discouraging US economic information today will continue to undermine ideas that energy demand is recovering rapidly. However, the weekly implied gasoline demand figure yesterday rose by nearly 500,000 barrels per day but to shake off the recent corrective mode next week will require more tangible evidence of increased car travel in the weeks ahead.
The fundamental and technical outlook favors the bear camp, but prices have once again returned to the vicinity of what has been very significant consolidation low support. However large build in weekly inventories yesterday, a slight risk-off vibe early today and another report of contracting US electricity output this week could result in a close below $1.80.
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