Written Commentary
NATURAL GAS
With another range down extension in natural gas yesterday, the market remains vulnerable to another wave of long liquidation from longs giving up on a late summer supply tightening. In fact, with French gas storage now 75% full and moving toward fuller levels and given that US natural gas inventories remain more than 13% above 5-year average levels, it is becoming increasingly unlikely that even a late blazing hot condition will save the bull camp. This week’s Reuters poll pegs today’s EIA in natural gas storage to see an injection between 16 BCF and 27 BCF. While it might not materialize, traders should not rule out a surprise large jump in stocks from the glitch in export activity due to a leak last week.
CRUDE OIL
From the breakdown on the charts yesterday and the downside follow-through early today, the trade has clearly discounted record weekly outflow from EIA crude oil stocks, ignored the 3rd highest US crude exports on record and discounted the 2nd largest crude plus petroleum product export tally on record. However, it is likely that renewed strength in the dollar, the highest treasury yields since November 2022 and expectations that the OPEC+ panel meeting on Friday will not include discussions on additional cuts prompted long profit-taking throughout the petroleum complex. Some traders think the Fitch downgrade of the US is likely to reduce US crude oil demand, while others are banking profits because of the beginning of peace talks on Friday regarding the Ukraine war. However, the Russians will not be attending the peace summit which cast doubt on the ability to make progress ending the war. On the other hand, if Putin is seeing domestic pressure resulting from the impossible to cover up drone attacks on the capital city, he will be seeking a way to save face while ending the war. The problem is the Ukrainians are unlikely to agree to land concessions and they might even demand the return of the Crimea. However, we think the most likely cause of the current setback is a simple overdone technical condition and ideas that prices above $80 are expensive until China shows confirmation that strong import demand has extended into August.
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