Written Commentary
CRUDE OIL
At times overnight the crude oil bull camp gained control, with fears of tightening supply from the Norwegian offshore workers strike and evidence of escalating political tensions in Libya tempering demand fear. However, the question for the energy markets today is the magnitude of energy demand “destruction” fears from a developing global recession. Certainly, a host of classic technical measures have been balanced with the recent washout from the June high, but without a constant threat against supply, crude oil is likely to slide below $105 later this week. While some will see the record Saudi price fixing into Asia as a sign of strong demand, others will suggest that is a precursor to less purchases by China of Saudi supply and more purchases of cheap embargoed Russian oil.
We suspect the bounce in gasoline from last week’s low has temporarily discouraged some would be sellers. However, prices this morning should remain under a liquidation watch from reports that US gasoline imports from Europe jumped by 57% over the last 7-days. While not a direct impact on gasoline futures prices, news of increased Chinese refinery activity could discourage some would be buyers of RBOB. Furthermore, the passing of the key US driving holiday should reduce seasonal based buying support. With the gasoline contract falling $0.40 from the most recent COT positioning report mark off, the contract is likely approaching the lowest net spec and fund long since March 2017.
NATURAL GAS
Apparently, seeing US temperatures running 4 degrees above normal has temporarily held up natural gas prices. In a fresh longer-term negative development, the IEA outlook for gas demand over the next 3 years is expected to soften with ultrahigh prices combined with global slowing projecting a 60% reduction in natural gas consumption by 2024. A significant decline in LNG spot trading volume last week could be a sign of softening demand for gas at current prices, or it might have been a function of the US holiday week. Not surprisingly US exports to European destinations declined and that negative was only partially offset by less supply flowing to US ports.
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