Written Commentary
NATURAL GAS
The natural gas market surprised the trade yesterday with a noted range up extension to the highest price levels since April 28th. Apparently, the natural gas was not undermined because of information that China was increasing its coal fired electric generating activity. On the other hand, the natural gas trade was apparently cheered by evidence of increased US electricity generation which in turn has apparently sparked chatter suggesting the beginning of the cooling season has begun. Supporting the beginning of the cooling season is unusual heat in the West which is expected to push into northern areas of the US next week. Nonetheless, the trade continues to expect strong lower 48 US gas production and large weekly storage injections ahead.
CRUDE OIL
We are surprised with the crude oil market’s capacity to respect the $70.00 level after bearish API crude stocks news yesterday afternoon. In fact, the API indicated US crude oil stocks increased by 3.68 million barrels last week with a significant jump in Cushing Oklahoma crude stocks of 2.8 million barrels. A further negative supply issue was documented by Bloomberg yesterday from predictions that Russian seaborne oil flows are flowing from strategic stocks which in turn technically would allow the Russians to cut “production” as agreed-upon in the OPEC+ plus deal. While the markets are likely seeing minimal support from the Biden administration plan to begin refilling the strategic petroleum reserve, the magnitude of each planned purchase is insignificant, with the impact on the markets psychological.
Furthermore, the International Energy Agency yesterday indicated global oil consumption will improve faster than their previous forecasts which provides fresh support to crude oil prices. According to the IEA, the Chinese recovery has been faster and stronger than expected with Chinese demand reaching an all-time high. On the other hand, many markets think the Chinese recovery is anemic and is not yet firmly entrenched. This week’s Reuters poll projects crude oil stocks to decline by 900,000 barrels and expects the US refinery operating rate to increase by 0.5%. After the close, however, the API survey said that US crude oil stocks had a weekly increase of 3.68 million barrels which contrasted with trade forecasts calling for a moderate weekly decline.
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