In retrospect, the crude oil market has seen a steady shift in a number of fundamentals from bullish to bearish, and yet prices have managed to hold up near 5-month highs. Perhaps prices are seeing some support from the potential for the earliest date ever for the 8th named storm of the hurricane season. From the supply-side of the equation, the market this week saw indications that OPEC would increase production next month, US production was found to have rebounded back to a 6-week high, Chinese port inventories reached a 5-month high and a large Canadian oil company has indicated almost all crude oil production in Western Canada will come back on line by the end of the year.
Certainly, the threat of a supply interrupting storm in the Gulf of Mexico combined with a much smaller than expected weekly injection tally was justification for some short covering yesterday following the large mid-July washout from $1.99 down to $1.6460. However, the smaller than expected injection to US inventories from the EIA storage report could be a one-off (maybe two-off with next week’s report) development from the weeks of much above normal US temperatures. The weekly natural gas storage report showed an injection of only 37 bcf.
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