NATURAL GAS
Even though the global natural gas trade has indicated the Middle East conflict will not impact global natural gas supply flow, prices have extended on the upside as if other factors are present. While the prospect of cooler temperatures and a smaller than expected injection last week sparked the initial recovery last week, surging Chinese coal prices and technical reversal signals justify a portion of today’s upside follow-through. In other words, US supplies are still burdensome but are slowly coming down. While not as important to the bull case there are periodic signs US export flow is recovering and could see new records in the coming months.
CRUDE OIL
So far, the battle between Israel and Hamas has resulted in an anticipatory supply threat but a real supply threat could surface if Iran begins to play a prominent role in the conflict. However, a portion of the large bounce is justified given the sheer magnitude of the attacks which distinguish the current situation from periodic skirmishes. Certainly, the outbreak of hostilities in the Middle East tempers global economic sentiment and in turn questions global energy demand. However, the ultra-strong US jobs report last Friday and the return of China from holiday should help cushion prices against demand fears. Fortunately for the bull camp, China is also ramping up its oil inventories with the latest monthly readings from August showing inflow of 1.32 million barrels per day. In another bullish development over the weekend Russia has left its ban on gasoline exports and cross border railway sales of diesel in pace which extends a supply threats from last week. In retrospect, last week’s EIA report added to the global tightening argument with a minimal decline in EIA crude oil stocks and with Cushing, Oklahoma stocks still hovering just above shutdown levels.
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