Written Commentary
CRUDE OIL
In retrospect, crude oil yesterday was fortunate to hold above the Friday low in the face of ongoing demand concerns. However, Chinese crude oil imports ticked upward but remain near 4-year lows. Fortunately for the bull camp, the relatively soft Chinese import level is partially explained away by reports that Chinese refiners used some crude in storage in July. Unfortunately for the bull camp, several EU members have continued to accept significant imports of Russian crude oil. However, reports overnight indicate that Russia suspended oil exports from a reported failure to receive payment from Ukrainian operators of the Western end of that pipeline. The crude oil market should also see support today from reports that demand for tankers transporting fuel have strengthened and have resulted in product tankers earning more than $40,000 per cargo for the past 14 days.
All things considered the gasoline market performed impressively yesterday despite ongoing evidence of softening US demand for refined products. Expectations for soft demand are also feared in Europe with refinery margins softening and gasoline stocks at the European storage hub rising last week. However, floating product tanker profits surging from strong demand for products like gasoline and diesel combined with the shutdown of a Russian oil pipeline has shifted the near-term bias in gasoline upward.
NATURAL GAS
Apparently, the natural gas trade focused on news of record lower 48 state US production in August with the September contract spiking down. In fact, (so far this month) lower 48 production for August is running at a 97.9 bcf/day rate compared to just 96.7 bcf/day in July. Keep in mind, US exports are at capacity and will not be expanded until next month, when a US export facility is expected to come back online after an outage. In a longer-term underpin for prices, Reuters reported that gas stockpiles in Northwest Europe were still 4% below the 5-year average for this time of the year and were at roughly 67% of capacity. Some Northwest European countries have objectives for winter storage capacity readings near 90%. Like European gas inventories, US natural gas inventories have held double-digit inventory deficits to 5-year average levels above 12.0% for months.
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