Written Commentary
CRUDE OIL
The bear camp starts today’s action with the edge following a surprise and notable inflow to API crude oil stocks, the decision to sell 1 million barrels of the US gasoline strategic reserve, a bit of negative macro pressure from market perceptions of “higher US rates for longer), and news of a 5.2% week over week increase in ARA crude oil stocks. While petroleum prices ranged down sharply and managed to reject a large portion of the initial wash yesterday, a five-day low early today shifts the technical condition back in favor of the bear camp. Furthermore, signs of softening global demand from the IEA and EIA should leave pressure on prices directly ahead. Apparently, Brent crude oil prices versus Dubai reached the lowest premium since December yesterday, and that suggests demand for Brent is indeed softening. This week’s Reuters poll projects oil stocks to decline by 3.1 million barrels which would be the third straight week of declines. Therefore, a theme of tightening North American supplies could emerge today which in turn could temper what has been a prevailing bearish attitude this week.
NATURAL GAS
In retrospect, the recent run-up in gas prices was probably from the concern of a Russian disruption of gas flow to the EU and Austria through Ukraine. However, overnight analysts have discounted the threat of supply shortages in Europe as short-term in nature. A longer-term bearish development is the rapid buildout of Chinese solar capacity as that will certainly cut into Chinese imports of feedstocks to generate electricity. With July natural gas aggressively rejecting the latest higher high for the move (the 10th straight daily higher high) that suggests the market is short-term overbought and showing signs of corrective action. However, seeing US cooling degree days continue to run above normal and given elevating risk of pipeline flow disruptions through Ukraine, the bull camp should remain somewhat confident.
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