Written Commentary
NATURAL GAS
We are surprised August natural gas has avoided significant declines to start the trading week with below normal temperatures throughout the Midwest and the trade aware of constructive talks between Iran and Iraq regarding their natural gas trade. However, continued European price volatility could signal renewed buying for strategic reserves against a lack of supply concern. With a modest reversal of sorts from last Thursday’s 6 day high and cooler temperatures throughout the midsection of the US, we see August natural gas prices returning to consolidation lows down at $2.258. In a longer-term supportive development, the weekly Baker Hughes rig operating count showed gas rigs operating declined by 2 and reaching the lowest level since March 2022. While the net spec and fund short in gas leaves the market partially oversold, the net oversold condition has moderated significantly since early in the year thereby leaving the speculators with selling capacity. While US temperatures ranging across the northern two thirds of US are producing below normal readings, the entire bottom one third of the US is set to see above much normal temperatures with many “triple digit” readings. Nonetheless, the path of least resistance remains down, especially with US cooling demand needs in the US bifurcated between regions which is likely to result in simple average demand.
CRUDE OIL
With the sharp downside extension in crude oil pushing prices near 30-day lows, the trade is clearly thumbing its nose at Saudi Arabia. The Saudi oil minister has attempted to shore up prices and get respect for the ability to control supply with suggestions that they orchestrated the recent cut as a proactive and precautionary move. Yet another recently fresh bearish development talks between the US and Iran has reportedly resulted in “substantial arrangements” regarding Iraqi purchases of Iranian gas. In addition to pre-existing energy demand concerns, the crude oil market might see additive selling pressure from news that a major Chinese oil company (UNIPEC) has sold 8 million barrels of Oman crude since June 1st. In a sign crude oil prices might be nearing “value”, the latest positioning report showed hedge fund managers increasing their net longs as if attempting to average into long positions near the recent consolidation lows below $67.50 in the August crude oil contract. Rounding off the bearish tilt in prices today is a Goldman Sachs reduction in their price outlook for Brent crude oil.
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