Written Commentary
CRUDE OIL
With global economic slowing fears constantly populating the headlines the range down action in crude oil prices this morning is justified by demand fear. In a way the Russian gas pipeline shut down pushes petroleum prices lower, as renewed fears of even higher energy costs in the euro zone/UK is expected to result in significant economic carnage. The crude oil market yesterday saw pressure from both the supply and demand sides of the equation. Softening Chinese demand was fostered yesterday by news of an 8.6% decline in July refined production consumption and because of a flare-up in Covid infections in several Chinese provinces. Furthermore, with Russian seaborne crude oil shipments to Asia reportedly down by 500,000 barrels per day over the past 4 months, concern for Chinese demand is surfacing from more than one front. Bearish news from the supply front came from a major Russian news outlet indicating OPEC+ was not currently discussing a reduction of output. On the other hand, a significant extension of yesterday’s sharp declines could quickly result in a change of heart within OPEC+.
With the severe ongoing washout in gasoline propelling prices down to the lowest level since February, the June through August correction is set to extend into September. In addition to the looming end of the North American summer driving season (with the passing of the upcoming 3-day weekend), the gasoline market was undermined following reports of an 8.6% decline in July Chinese refined fuel consumption. It goes without saying that escalating slowdown/recession fears around the world add to the expectations of softer demand for fuel. This week’s Reuters poll projects EIA gasoline stocks to decline by 1.1 million barrels and a decline of 0.5% in the US refinery operating rate. The API survey showed US gasoline stocks with a weekly decline of 3.414 million barrels which was a much larger decline than market expectations. Therefore, EIA information might be supportive, but might also be fully discounted if risk off sentiment prevails in the US and implied gasoline demand reading falls precipitously.
NATURAL GAS
While a temporary failure of the $9.00 level in October natural gas again this morning weakens the charts, the unending threat of surprise supply disruptions should discourage aggressive selling. In fact, the current 3-day maintenance shutdown of the Nord Stream 1 pipeline increases the risk to fresh shorts considerably and if that maintenance is prolonged, that could downgrade recent hopes that Germany will manage to reach their best-case strategic storage targets ahead of the coming winter.
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