Written Commentary
NATURAL GAS
It is not often that a market presents a quadruple top formation on the charts and therefore, the outlook for the natural gas market indicates the bull camp is narrow and lacking commitment. However, extreme heat forecasts had been moderated from very bullish forecasts last week and even with those extreme heat predictions, natural gas has shown little upside sensitivity. In a fresh demand negative overnight reports out of southeast Asia indicated softer Indian demand for gas from ideas that current prices are expensive. A partial offset to the negative Indian gas demand news is a projection overnight that Chinese gas demand this year will be up by 6.7% because of “new power plants”. While not a major factor influencing natural gas prices yesterday the Russians attacked a nonmilitary merchant vessel in a Ukrainian port which adds to the recent escalation of the war which could signal a looming Russian cutback in exports to Europe. We give the edge to the bear camp as bullish weather forecasts have failed to result in the market taking out thickening resistance from a 4-day consolidation high on the charts.
CRUDE OIL
With the crude oil market overbought from a 6-day low to high rally of $6.00, a critical macroeconomic junction from the Fed later today and reports that massive Chinese buying in June might have been stockpiling suggest the market has gotten over of its skis. Apparently, China added 2.1 million barrels per day to commercial and strategic stockpiles last month which was the largest addition in 3 years. Therefore, the bull camp needs positive macroeconomic sentiment after today’s Fed press conference to avoid corrective action. Adding into the initial profit-taking bias is a surprise build in API crude oil stocks yesterday afternoon of 1.3 million barrels. Furthermore, with the Reuters survey pegging EIA crude oil stocks to decline by a large 2.3 million barrels the bulls could see aggressive selling. Adding further to the bearish supply-side tone is the 6.1% week over week increase in European crude oil in storage. However, from a longer-term supply side perspective evidence of further reductions in Russian supply flow and a prediction of large supply deficits over the next 2 months from Standard Chartered has helped to underpin prices going forward.
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