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Extremely Low Crude Stock Levels


In retrospect, the takeaway from the US Fed decision yesterday undermines commodity demand expectations ahead as the US Fed intends to continue the fight against inflation until their 2% target is achieved. Therefore, strength in the dollar is likely to continue adding further pressure to many physical commodity markets. However, the tightening supply theme continues to see supportive fundamental headlines which means the weakness in prices is the result of a downshift in global energy demand expectations. In fact, overnight Saudi July oil exports dropped 37.9% from year ago July levels and posted the lowest monthly tally of this year. Furthermore, traders are noting hesitancy to ship Russian oil given the violation of the price cap which in turn increases demand for non-Russian global supply. Furthermore, EIA inventory data was very supportive as crude, gasoline, distillates, and diesel inventory readings declined, and the trade continues to be concerned about extremely low stock levels at the Cushing, Oklahoma storage hub. In fact, Cushing supplies are now at 22.4 million barrels which is nearing two-year lows and nearing levels which will force operations to halt at the facility. Apparently, as oil is removed from tanks and storage falls below 20 million barrels, pumping oil from the tanks becomes difficult and the storage tanks are likely to collapse as intended by their design.

Energy production


Predicting the daily action in the natural gas market is extremely difficult as the market lacks direction and is likely to remain pinned down by a wall of supply in the US and Europe. In addition to European strategic storage holding at 90% plus levels, and with the Ukrainians reportedly filling their strategic storage to capacity demand in Europe could remain soft in the near term. Furthermore, the track of tropical storms this month has been very unusual with the storms hooking to the north and east in the middle of the Atlantic, thereby not threatening US production or export facilities. This week’s Reuters poll projects EIA gas injection to total 67 BCF with a higher-than-expected number potentially signaling the beginning shoulder season. Pushed into the market, we favor the bear case, but violating contract low support down at $2.825 might be difficult unless there is a big picture macroeconomic meltdown, the weekly injection is above expectations and or crude drastically extends this week’s washout.



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