Written Commentary
NATURAL GAS
Despite Bloomberg coverage overnight noting Chinese LNG inventories have dropped to nine-month lows, natural gas prices have forged fresh contract lows. In fact, LNG prices in China are now below LPG and diesel which leaves only coal as the go to source for many energy generating systems. As we have been predicting for weeks, natural gas continues to forge fresh contract lows and that action is likely to continue even if today’s weekly EIA gas in storage report shows a surprisingly large withdrawal. Bearish sentiment is so widespread that the markets have been presented with headlines that more than adequate supply is now likely for next winter.
CRUDE OIL
The bull camp has several bullish themes in play today with OPEC+ production restraint generally expected to result in tighter world supplies and positive demand signals flowing for crude oil, gasoline, and diesel. In the crude oil market both China and India continue to feed at the trough of Russian supply flow and according to Bloomberg, gasoline consumption on a global basis is improving while global jet fuel demand is also expanding. Another minor supportive development is the prospect of continued US strategic petroleum reserve buying with targeted pricing of $79.00. Despite a slight negative track early yesterday, energy prices recovered without assistance from outside markets. In fact, crude oil prices also recovered in the face of a significant narrowing of the year-over-year EIA crude oil inventory deficit and in the face of a 3.1 million barrel weekly inflow to EIA crude oil stocks. While a 3.1 million barrel weekly inflow to EIA crude oil stocks would ordinarily be very bearish to prices, the massive API crude stocks inflow from Tuesday afternoon sparked the initial washout yesterday, thereby allowing the EIA reading to be seen as a relief for the bull camp. In today’s action, we suspect big picture macroeconomic forces will play a large role in price action with as expected or hotter than expected PCE readings resulting in a soft finish to the holiday shortened US trading week.
PRODUCT MARKET FUNDAMENTALS
While gasoline prices this morning are not showing as much strength as crude oil, the bias has improved slightly from the significant erosive action of the prior two trading sessions. Even supply news is supportive this morning with Singapore fuel inventories dropping a second straight week, but that news is offset by projections that Chinese refineries are ramping up activity. However, the weekly EIA report was bearish to gasoline with stock levels expanding and the year-over-year inventory surplus expanding. Furthermore, the weekly implied gasoline demand reading came in at the lowest level since February 23rd and this week’s implied demand reading was the second straight week where 2024 implied demand came in below seasonal levels. While many traders see the diesel market as the “dark horse” in the petroleum markets, concerns of significant diesel supply tightening from Russian export halts have not materialized leaving the market in a washout mode.
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