Written Commentary
CRUDE OIL
In retrospect, the crude oil market once again displayed bullish resiliency with a very impressive two low to high recovery of nearly $10.00. Furthermore, the bulls have extended their control this morning with fresh contract highs across-the-board in petroleum markets. Apparently, the
markets have discounted news that Saudi Arabia substantially hiked July crude oil prices for Asian buyers to $120 as that could discourage demand for non-Chinese supply. On the other hand, overnight reports indicated Asian buyers were not initially put off by the higher price adjustment. Another fresh positive this morning is an 11% decline in floating crude oil supply over last week. When one considers the rally in crude oil prices recently was forged in the face of a potential softening of production restraint sentiment in Saudi Arabia and other key OPEC producers, it appears that energy demand expectations are growing faster than regularly scheduled data would suggest.
While it seems too easy to predict higher gasoline prices due to rising seasonal demand, that issue is in the driver’s seat especially following news that Asian imports of Russian naphtha dropped to a record low last month, which means world supply and not Russian is being consumed! Furthermore, US EIA implied gasoline demand readings have reached 9 million barrels per day but have yet to show further gains at the very beginning of the driving season. Perhaps there is a measure of demand destruction from record pump prices, but normal seasonal demand gains could largely countervail volumes reduced because of prices. It is also possible that better Chinese sentiment from re-opening, relief from a middle-of-the-road US jobs report and inflation related buying will extend the rally in gasoline.
NATURAL GAS
With a surprise gap higher trade this morning forged despite reports that German gas storage increased to 51% full and EU storage reached 49% full supply that news could have been interpreted as bearish. However, with Germany and the euro zone intending to fill supply to capacity before next winter a tremendous amount of buying sits in the offing. Not surprisingly, the European gas flow condition remains highly fluid with the Russian national gas company continuing to ship via Ukraine pipeline over the weekend. Expectations of record cooling demand in Texas combined and the first storm advisory from the National Hurricane Center provides bullish supply and demand forces going forward.
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