NATURAL GAS
While hotter than normal seasonal temperatures in the central US have been offsetting cooler US temperatures in the western US, bearish demand news should continue to trump hopes of a late in the season surge in cooling demand. Overnight global floating LNG supply increased by 30% over last week and has posted a 16-month high which could be the catalyst for a push to contract lows. Unfortunately for the bull camp, European buyers are in no hurry to top off their strategic storage for winter, especially with those storage levels closer to capacity than is normal for this time of the year. Even the positioning report in natural gas favors the bear camp with the net spec and fund short of 74,000 contracts barely half of the highest net spec and fund short this year of 142,438 contracts. Furthermore, with Bloomberg reporting lower 48 US dry gas production on Monday running above year ago levels and gas flows towards LNG export terminals down 9% versus last week, the bear camp should continue to control. In conclusion, the fundamental bias remains down, with the odds of new contract lows increasing.
CRUDE OIL
Unfortunately for the bull camp, the charts became even more negative overnight with an eight-day low, and a rising dollar continues to discourage US export sales. While the pace and size of purchases for the US Strategic Petroleum Reserve are not materially significant, that buying has not tempered expanding bearishness toward consumption. In fact, November crude this morning broke out of the recent sideways chop pattern to the downside potentially sparking even more stop loss selling. In retrospect, gains in prices over the last 30 days have been definitively the result of ongoing evidence of tightening global crude oil supply, particularly in the US. Bullish sentiment was obviously running very hot with $100 oil predictions replaced by a prediction of $150 oil. However, the latest series of global rate hikes and the US Fed’s higher rates for longer dictation from their last meeting should facilitate further energy demand losses. On the other hand, recent global traffic congestion readings have crept higher in the face of seasonal headwinds. Fortunately for the bull camp, the long Chinese Autumn holiday is expected to result in 21 million Chinese taking domestic flights and significant vehicle travel during the upcoming eight-day holiday. This week’s Reuters poll projected EIA crude oil stocks to decline by 1.7 million barrels. However, without fresh evidence of tightening supply, outside market forces of rising interest rates, an unrelenting march higher in the dollar, falling seasonal demand and more concern toward the Chinese economy, it will be surprising if demand does not soften considerably.
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