Written Commentary
CRUDE OIL
While last week’s spike below $90.00 in September crude oil could represent a key bottom, the outlook for demand from economic data and equity market action will likely drive prices sharply in both directions this week. In the short term, the daily direction of crude oil prices is likely to take significant guidance from the equity markets as the ebb and flow of demand destruction from equity market signals has been the dominating force since the June highs in crude oil. Therefore, initial upside action (a 4-day high) is at least partially the result of higher equities but also because of a decline in floating global crude oil storage of 6.3% on a week over week basis. Most importantly Asian-Pacific floating stock was down 11% with North Sea supply down 52%.
While the gasoline market might find residual support from the Saudi comments that high global energy prices in the US are the result of a shortage of refinery capacity/activity, the market will face ongoing demand destruction fear selling. Unfortunately for the bull camp, demand concern was given traction by recent high-frequency road use declines in China but that negative demand news was significantly offset by reports that Chinese gasoline shipments over the first 6 months of this year declined by 42%.
NATURAL GAS
With a fresh upside breakout the natural gas market continues to find buyers off the combination of strong global cooling demand and from ongoing anxiousness over the July 21st scheduled reopening of the Nord Stream 1 pipeline. In fact, a portion of the rally last week might have been European factoring of a delayed return of that supply following maintenance. On the other hand, the Russian national gas company supply flow to Europe through Ukraine remained steady over the weekend. In our opinion, Russia has not shown the inclination to shut off the pipeline and halt the revenues from that pipeline.
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