Written Commentary
CRUDE OIL
At least to start today the crude oil market is under pressure and seemingly held down by even number resistance at $95.00. However, Asian buyers are continuing to take significant volumes of cheap US oil and South Korean and Indian refiners continue to buy moderate amounts of Middle East crude. The rally in petroleum markets yesterday was forged in the face of a surprising downward revision in OPEC’s 2022 demand forecast. In fact, the OPEC downward demand revision was the 3rd demand forecast reduction from OPEC with the actual amount of decline in oil demand “growth” previously pegged at 3.1 million barrels per day reduced by 300,000 barrels per day. It should also be noted that the IEA recently increased its 2022 demand growth forecast numbers. Fortunately for petroleum markets (and unfortunately for the gas market), the IEA has also predicted increased substitution demand for petroleum versus ultrahigh-cost natural gas feedstocks.
With the higher high and the highest trade in September gasoline since August 3rd, it is obvious that demand views improved in the wake of evidence of softening US inflation. Furthermore, by some national average calculations of retail gasoline prices, gasoline fell below the $4.00 level for the first time since March which is expected to underpin demand. The bull camp should also be emboldened by the 5% drop in ARA gasoline stocks this week. While the gasoline market had a net spec and fund long position of 57,300 contracts in the last report, that long positioning has probably not expanded greatly considering that the Thursday close was almost exactly at the level on the close of the last COT report measurement.
NATURAL GAS
Not surprisingly, natural gas prices have started off on a weaker footing today given a cooler European temperature forecast, mild weather expected over the US East coast and evidence that lower 48 state dry gas production yesterday increased by 3.2%. Despite a larger than expected weekly injection into EIA storage, a cooler US temperature forecast into the end of the 3rd week of August and projections that ultrahigh gas prices will result in demand rotating to cheaper petroleum feedstocks, the natural gas market ranged up and posted the highest trade since July 28th.
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