CRUDE OIL
A clear example of why most of the world US foreign-policy as confusing and counterproductive is the decision to bomb Syria overnight as that adds to the prospects of a spread of the conflict which the US has been trying to contain. Clearly, there are subtle differences involving Syria demonstrating aggression in the region while attempting to talk or delay Israel from starting the ground attack stokes Arab anger. In fact, Iran has threatened the US will not be spared if the war spreads which likely means attacks against US troops in the Middle East and could mean a domestic terrorist. With Iran the source of drone attacks on US military personnel earlier this month US leadership and the military might be more aggressive than usual. However, the rally this morning is not entirely the result of the airstrikes and is given classic fundamental supply support from a Bloomberg article overnight indicating global have declined to multi-year lows. However, there are several bearish demand developments overnight with Japanese September crude oil imports down by 16.7%, German diesel sales falling by 16% and chatter about falling demand from seasonal influences. Apparently, the markets have discounted news that Venezuela might divert 250,000 barrels per day of crude oil to the US because of the loosening of the sanctions.
NATURAL GAS
Once again see strength in natural gas prices as a function of short covering from the recent new contract low and heavily oversold technical condition. In fact, the gains this morning are being forged in the wake of headlines indicating Japan has finished its winter buying additional Certainly, a shift to cooler temperatures signals the looming end to the shoulder season and given sustained weakness in global equities the fear of softening demand is justified. Furthermore, justifying the sharp rally yesterday because of a bottom of the range of estimates injection is suspicious especially with the surplus to the five year average a three-week high. Over the last four weeks, natural gas storage has increased 341 bcf. However, it is possible that a massive expansion of the conflict in the Middle East could imperil some gas supply flows and therefore traders should not rule out natural gas showing increased correlation with the crude oil market.
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