Written Commentary
CRUDE OIL
In our opinion, crude oil prices can “bounce”, but they cannot hide from the prospects of further global energy demand destruction. Certainly, overnight comments from US officials that Saudi Arabia will not expand production in the near term is supportive as is a slight improvement in overall market/economic psychology this morning. Furthermore, the bounce this morning is given added credence by a decline in Shanghai crude stockpiles of 20% and by evidence that Chinese oil refining activity increased last month reportedly off increased fuel demand.
Despite higher early action in gasoline prices, the fundamental news flow overnight suggest more declines are ahead. In addition to several fresh reports of softening global fuel demand, the trade is expecting Chinese fuel export levels to expand after increased refiner quotas. However, according to Reuters Asian gasoline exports for July are running behind June and are likely to come in under June. In the end, like the crude oil market, the gasoline market remains under a liquidation watch from internal and external forces.
NATURAL GAS
While extremely hot temperatures are forecast into next week in the US, the market might have embraced and mostly factored increased cooling demand with the high to low rally this week of $0.90. However, the bull camp has seen supportive developments from the threat of a disruption of Australian LNG exports from a labor conflict, US LNG supply flow is more profitable to Europe, and Chinese June power production increased by 1.5% over year ago levels. Seeing US LNG supply become more profitable for delivery into Europe and strong US consumption for cooling reduces the potential to build US inventories quickly.
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