Written Commentary
CRUDE OIL
Yesterday with a lower low and the lowest trade since October 13th, the bias in gasoline remains down. Apparently, the gasoline trade was not impressed with reports from Marathon Petroleum suggesting fuel demand was strong in the third quarter. Adding to the bearish tilt is a decline in August in US gasoline exports from the most recent EIA report. Furthermore, gasoline is likely experiencing indirect pressure from the restart of Russian diesel exports. This week’s Reuters poll projects EIA distillate stocks to decline by 1.5 million barrels and gasoline stocks to decline by 800,000 barrels. Despite the resumption of diesel exports from Russia, the diesel market showed the strongest performance yesterday perhaps because of a wave of cold temperatures in the US. The path of least resistance is down in gasoline which we think is the most vulnerable component of the petroleum complex.
NATURAL GAS
Just as we were skeptical of the rally last week in natural gas, we are skeptical of the rally in natural gas yesterday. Apparently, the markets saw this week’s US cold temperatures as a potential supply pivot with strong US exports and improving seasonal demand offsetting news of record US production. In fact, given a two-week extension of US cold, a surprise monthly gain on the charts, and potential technical stop loss buying from the December rally beyond the gap filling price.
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