Written Commentary
CRUDE OIL
Fortunately for the bull camp, crude oil appears to be poised to benefit from improved macroeconomic sentiment flowing from growing speculation that the US central bank might become less aggressive if this week’s US inflation data shows a “contraction”. From a shorter-term perspective, energy prices this morning are also benefiting from fear of a break down in Iranian nuclear talks. In our opinion, if retail fuel prices continue to fall the Biden administration will be less likely to agree to a deal which largely favors Iran. It is also possible that crude oil prices will benefit from further efforts to implement a Russian oil price cap. Furthermore, the bull camp should remain inspired by comments from the Russian President threatening to stop all oil supply in the event a European price cap is imminent.
Certainly, gasoline futures are benefiting from spillover strength in crude oil today, but we see recent gains as a temporary bounce in a bear market. Fortunately for the bull camp, private services noted a contraction in global fuel oil supplies last week and an increase in Chinese independent oil refinery operating rates. While the gasoline market at the end of last week showed a significant technical recovery, prices could continue to benefit from hope that overly aggressive US rate hikes might be passing soon. Like the crude oil market, the gasoline market should benefit from Russian threats to “cut off all oil supply flow” in the event of a Price Cap and fundamental support from last week’s 1.6% decline in European gasoline stocks.
NATURAL GAS
Despite escalation of winter tightness fears in Europe from fresh estimates suggesting storage capacity will not remove the potential for extreme winter tightness on the European continent, a forecast for continued hot US weather into next week, a beginning of the hurricane season, and a moderate net spec and fund short positioning, natural gas prices have not rallied this morning. It is possible that reports of German storage reaching 88% of capacity has discouraged many would be buyers. However, last week’s rejection of the sub $8.00 level provides a measure of technical support to the market as does the ongoing shutdown of the Nord Stream 1 pipeline. As in the petroleum markets, EU discussions of a gas price limit is creating uncertainty of future gas supply flow.
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