Positive Demand News for Crude
While the crude oil market has forged a 4 day high this morning and prices have bounced nearly $5.00 from this week’s low, we do not see an uptrend pattern developing. Even though weekly EIA crude oil stocks declined against expectations of an inflow, the totality of yesterday’s EIA report fails to justify the type of strength posted early today. However, the trade was presented with positive demand news overnight from reports that Japanese September crude oil imports increased by 5.1% and from signs that crude oil tanker shipping rates have remained very strong. The weekly EIA report was relatively benign with weekly inventory changes very modest and stronger implied gasoline demand offset by weaker implied distillate demand. Official confirmation of the last 15 million barrels of sales from the strategic petroleum reserve probably provided limited pressure yesterday, as it was widely anticipated. US official efforts to facilitate a price cap agreement on Russian oil might be slightly improved by US indications the cap would not apply to any output besides Russian, but it remains to be seen how G7 nations would enforce a price limit on Russia alone. In conclusion, demand destruction fears are escalating along with interest rates and without an unforeseen Russian inspired supply cut back crude prices are likely to slide into the end of this week.
A big range down failure below the psychologically important $6.00 level, mild temperatures over the coming 2 weeks and noted weakening of European wholesale gas prices leaves the bear camp with control. Given ongoing mild US temperatures from the shoulder season, today’s EIA working gas in storage report is likely to apply fresh pressure to natural gas prices. The latest Reuters poll projected a fifth straight triple-digit injection into US working gas in storage. According to a study by Bloomberg news, the outage at a Freeport export facility probably prevented US inventory levels from falling below the end of summer levels which in turn will likely dampen the magnitude of gains in winter US gas prices. However, in a negative development overnight the trade saw news that the fire damaged export facility will need for permit authorization before returning to service. The path of least resistance is down with prices seemingly on track to return to the early July lows down at the $5.75 level. While the net spec and fund short positioning in natural gas adjusted for the $1.00 break from the last COT report has likely resulted in the largest net short since the beginning of the pandemic, fundamentals for a bottom are not currently visible.
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