Written Commentary
CRUDE OIL
Into today’s early action global demand fears have returned and the restart of the Russian gas pipeline provides some indirect pressure on petroleum prices. In fact, the energy markets are facing a broad swath of demand threats with reports of significant layoffs in the Chinese manufacturing sector, leadership voids in Italy and the UK and earnings reports showing adverse impact from high energy prices. However, there is a negative demand offset this morning following a Bloomberg projection that Chinese apparent fuel demand has returned to pre-Covid levels. Another negative facing crude oil today is the widely anticipated 50-basis point ECB rate hike.
Despite Bloomberg predictions that Chinese apparent fuel demand has returned to pre-Covid levels, RBOB prices have broken out to the downside with a large spike down move. The general net take-away from the weekly EIA report leans in favor of the bear camp. A 2nd week of build in gasoline stocks, a significant narrowing of the year-over-year gasoline stocks deficit and the proof of a peak in summer gasoline demand (implied gasoline demand is currently close to 1% below the summer peak) the noted reduction in the US refinery operating rate is heavily countervailed.
NATURAL GAS
With the upside breakout in September natural gas futures to the highest level since June 16th yesterday, the overnight restart of the Nord Stream 1 pipeline is justification for a profit-taking retrenchment. However, there is justification for the speculation of additional pipeline halts given fresh maintenance threats from the Russian president yesterday. Near-term US weather is slightly negative with a return to temperatures in the 80’s in a large section of the country, but after two days extreme heat is expected to return.
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