CRUDE OIL
While the crude oil market rejected a new low for the move, we leave the fundamental case with the bear camp. Obviously, with a new low for the move, the charts also favor the bear camp. In short, there are several bearish fundamental forces emboldening the bear camp with a slight uptick in US rate hike fears, higher highs in the US dollar, residual Chinese economic fears, and creeping concerns for seasonal softening of northern hemisphere demand. Other bearish signals include the markets lack of bounce from this week’s sharp oil inventory declines and news of the highest US production levels since 2020. Clearly, a 6.1-million-barrel API oil stock decline on Tuesday and a 5.9-million-barrel decline in EIA crude oil stocks yesterday tempers bearish interest in a market also facing very strong US refinery throughput activity. With implied gasoline demand also remaining strong, the US refinery operating rate may stay higher for longer to keep up with lingering seasonal demand. Another sign of strong US oil demand is the fact that US crude oil inventories declined in the face of the highest US production of the pandemic period. An indirect negative for crude oil prices overnight projection that European traffic readings have declined to the lowest levels of 2023.
NATURAL GAS
The liquidation track looks to extend, but fresh sellers should be advised of a rising wave of heat forecast for next week in the US. In fact, some meteorologists suggest a “heat dome” could build in with the extreme heat in the southern Delta area shifting North. On the other hand, not all temperature forecasts predict extreme heat in the US next week, and hotter temperatures may not be significantly above normal in many areas. Given the “lateness of the cooling season” and recent evidence of rapid rebuilding of strategic gas supplies in Germany, Europe, and Japan, a severe tightening of global LNG supplies probably requires extreme and broad-based high temperatures in the US and Europe. It is possible that natural gas is finding support from chatter overnight of an extended Australian strike at 3 LNG facilities. While a reduction in Australian export flows is supportive that supply shortfall will likely be replaced by other supply which will require greater shipping times. The path of least resistance remains down. However, an extreme temperature forecast for next week has emerged, but the heat forecast is not supported by many forecasts.
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