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Supply Side Issues Support

CRUDE OIL

As in many markets, the crude oil market enters the US nonfarm payroll report release window significantly oversold from a 3-day high to low washout of $11.68. However, fresh bearish news overnight came from news of the lockdown of another major Chinese city. On the other hand, with Russia overnight announcing they will stop selling crude oil to those who implement price ceilings and given the oversold condition of the market this morning’s “bounce” is partially justified from both technical and fundamental perspectives. It should be noted that OPEC+ will meet on Monday and while the cartel recently discounted the potential for a reduction in output, significant declines in crude oil prices resulting in the lowest pricing since the beginning of the Russian invasion could change their wait and see stance.

Despite a summer 3-day holiday driving weekend ahead and a decline in weekly Amsterdam, Rotterdam and Antwerp gasoline stocks, US gasoline futures prices yesterday ranged down, forged a lower low for the move and traded below levels seen just ahead of the outbreak of the Russian invasion. The slide in gasoline futures is justified by analysis showing current US gasoline demand nearing pandemic levels. However, declining gasoline margins and the expectation for seasonal declines in refinery activity (for maintenance) should begin to reduce gasoline flow into storage.

Oil Pump Jack

NATURAL GASSeeing natural gas prices rally yesterday in the face of a bearish weekly storage report and in the wake of a significant Chinese demand threat highlights the market’s respect for further Russian gas supply disruptions. Keep in mind, that the 3-day maintenance shutdown of the Nord Stream 1 pipeline should be coming to an end soon, and any extension of that shutdown should be cause for prices to trade closer to $10.00 than to $9.00. In a minor supportive development, US LNG exports expanded slightly last month but remaining severely limited by the delayed restart of a Texas facility.

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