Energies To Focus on Macro Influences
Apparently, the crude oil rally has paused ahead of a critical macroeconomic junction in the form of a US debt ceiling meeting and perhaps because of looming fear of ongoing US inflation complications flowing from tomorrow’s US CPI report. Furthermore, energy demand expectations were partially undermined with some interpretations of Chinese trade data overnight suggesting a lack of forward movement in the Chinese recovery. In fact, Chinese energy demand concerns have been accentuated by April Chinese crude oil imports dropping to the lowest levels since January. While some of the fear of slackening Chinese energy demand are the result of flush inventories and seasonal refinery maintenance, fear of softening consumption is the focus of the trade. However, there are positives capable of diffusing big picture negative outside market influence selling with Indian diesel consumption surging, Suncor indicating strong demand in its earnings report and proof of further expansion of global jet fuel demand. Even the supply-side of the equation is contributing to bullish hopes this morning with wildfires in Canada reducing production. Furthermore, supply cutbacks by OPEC+ have been partially confirmed by a significant reduction in the number of cargo bookings which in turn is confirmed by a massive drop in supertanker rates. Another cushion for crude prices is signs that investors are returning to the USO oil fund ETF. In the end, the energy markets are likely to shift their focus to macroeconomic influences over internal physical supply and demand developments. Therefore, we give the near-term edge to the bear camp.
Even though the natural gas market has rejected last Friday’s new low for the move, fundamental issues in the market remain in favor of the bear camp. Fortunately for the bull camp the markets saw an offset to a Goldman forecast of lower gas prices in Europe this summer from interest in purchasing LNG for summer consumption from the Chinese national oil company overnight. Fortunately for the bull camp, the large net spec and fund short in natural gas should keep speculative selling limited and the market less vulnerable to bearish supply and demand fundamentals. Clearly record US LNG exports are discouraging some sellers but without surprise late season cold or surprise early season cooling, we leave the path of least resistance pointing down. With little change in bearish fundamentals over the last three weeks, and the recovery off last week’s low yesterday, we see natural gas vulnerable to a resumption of the downtrend.
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