Written Commentary
NATURAL GAS
All things considered, the lack of a bullish reaction to surging US demand from surging cooling needs (from some of the hottest temperatures of the year in the US) highlight bearish control. Therefore, the natural gas trade is not concerned with a dramatic late season tightening of US supplies, which is not surprising considering that the latest working gas in storage tally was more than 10% above 5-year average storage levels. Furthermore, prices this morning are not showing any reaction as Russian claims they destroyed a Ukrainian vessel at a Black Sea gas facility. In conclusion, the bear camp is likely to remain confident without a noted extension of this week’s hotter than normal US temperature forecast into next week or the fear of an Australian strike increase substantially after management indicated they have by responding to employee demands signaling they could be at their limit of negotiation. On the other hand, after very quiet tropical conditions, activity has ramped up, increasing the odds of a storm approaching US production and shipping areas. While we think the strongest odds are for a continued sideways chop, pushed into the market today, we give a slight edge to the bull camp as hot US temperatures should underpin.
CRUDE OIL
Despite a slight improvement in overall global macroeconomic sentiment from higher equity market action, crude oil prices extended yesterday’s corrective slide. Some of the weakness this morning is the result of prospects of an expansion of Iraqi oil exports. Another bearish supply side development is Bloomberg headlines overnight touting Iranian oil flows climbing above 2.2 million barrels per day! In yet another bearish supply influence Venezuelan oil production jumped by 10.6% over last year in the February through August 2023 period. Furthermore, it goes without saying that uncertainty toward Chinese economic activity and therefore oil demand has prompted long profit-taking especially with a large measure of the June through early August rally off ideas of residually strong Chinese demand. However, in a positive WTI demand development, US oil exports this month are projected to reach 5-month highs according to private estimates. On the other hand, global energy demand expectations should be questioned given increased Chinese credit concerns and ongoing growth concerns in China. While crude oil prices charged out of the gate to the upside yesterday, the market experienced a reversal suggesting $82 crude oil pricing might be viewed as expensive in the trade this week. It should be noted that the recent short covering rally was heavily fueled by evidence of tightening US crude oil supply and from a temporary brightening of macroeconomic skies because of signs the US economy has remained strong. Therefore, this week’s crude oil inventory readings will be very important, especially with crude in floating storage dropping 7% on a week over week basis and the US refinery operating rate running very hot at 94.7%. On the other hand, US crude oil inventories at the EIA continue to hold a year-over-year surplus of 14.7 million barrels despite very large outflows in two of the last three weekly reports.
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