Written Commentary
NATURAL GAS
Clearly, reports of extreme heat in Texas and in western US states and a forecast for low 100’s-degree temperatures next week in Illinois, Iowa, and Missouri failed to drive natural gas prices higher this week. Furthermore, recent severe heat in Europe has been discounted with the European trade discouraged from buying off broad views that European inventory levels remain flush. This week’s Reuters poll projects EIA inventories to post an injection between 51 and 41 BCF and while weekly injections have been declining so far, demand hope has not resulted in a market soaking up of excess US supplies. Another limiting force for the bull camp today is a reduction in export flow from the Sabine Pass LNG terminal that was reportedly prompted by issues with the intake of feed gas. While the bull camp will see some support from extreme current heat in Texas and from expectations for extreme heat next week in portions of the US, the market does not appear to be overly sensitive to bullish influences.
CRUDE OIL
While overnight fundamentals add to the positive early technical action, we are skeptical of the potential to quickly take out the July high at $77.15 and quickly regain $77.50 based solely on the prospect of an end to global rate hikes. However, the bias remains in favor of the bull camp this morning with European crude oil in storage declining by 0.3% on the week, a decline in API crude oil stocks yesterday, a Citi group forecast of a $90 ceiling in crude (with a floor around $70.00) and fresh bullish technical signals providing an extension of this week’s bullish environment. Yet another but perhaps suspicious bull item is a report that Russian seaborne crude supply flows posted a 6-month low on a 4-week moving average basis. Apparently, the trade is confident the Russians will indeed respect their commitments to reduce oil exports by 500,000 barrels per day next month. With crude oil prices yesterday aggressively rejecting a 2-day dip in the wake of disappointing US scheduled data and strength in the US dollar, the crude oil market is apparently sensitive to the ebb and flow of lower US interest rate hike prospects. While the trade expects a large decline in EIA crude oil stocks later today, September crude oil enters the middle of the trading week $9.00 above the late July low where demand concerns were dominating market sentiment. After the close, the API survey said that US crude oil stocks had a weekly decline of 797,000 barrels which was a smaller decline than what the market was expecting.
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