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Crude Prices Linked to Equities

CRUDE OIL

The path of least resistance in crude oil remains up likely because positive economic sentiment continues to surface from equity market gains. Clearly, crude oil prices are showing some correlation with equities which indicates that energy demand concerns remain in the trade. On the other hand, traders should not discount the potential support from the approach of a storm upgraded overnight to a hurricane status especially with projections that hurricane could reach category 3 standing before making landfall around the Florida Panhandle. Therefore, the threat of disrupted production from oil platforms will probably keep some sellers at bay over the coming sessions. Unfortunately for the bull camp, the latest Chinese stimulus effort was a mere reduction in financial transaction taxes which is unlikely to provide quick stimulus to the economy and especially support for physical commodities. Another supportive issue with some staying power is the US seizure of an Iranian tanker from Gulf of Mexico waters. Obviously, that sparks geopolitical angst between the two countries and could have some impact on global supply flows. With reports overnight pointing out significant profits for Middle East producers that increases the potential for Saudi Arabia to extend its production cut into the future. However, the outlook for crude oil over the coming sessions will be heavily dependent on hurricane Idalia even though current projected storm tracks skirt the eastern edge of US oil platform areas.

Oil Rig & Tanker

NATURAL GAS

The sharp gap trade higher in natural gas to start the trading week prompted only a temporary wave of bullishness which failed quickly thereby rupturing bullish sentiment. Obviously, early gains yesterday were sparked by last week’s warm weather, a small storage injection, resumption of high heat ahead, news that cooling degree days last week were 17 days above normal all of which combined to lift prices. While more of an impact on European gas prices than US prices a portion of the Chevron natural gas facility union voted to give authorization for a strike which could create tightness in Europe and thereby provide indirect support for US gas pricing. On the other hand, the LNG workers have suggested they could opt for rolling strikes which would allow for some supply to flow. However, the natural gas market has lacked bullish sensitivity with the market trading lower today despite news of an 8.8% decline in LNG in floating storage. This week’s Reuters poll projects EIA gas in working storage to post an inflow of only 11 BCF to as high as 36 BCF. The inability to sustain what was initially a gap higher trade to the highest level since August 15th yesterday highlights a lack of bullish resolve. Clearly, the markets are aware of the strong cooling demand in the US ahead but without sustained and very severe heat at the end of the cooling season, US gas inventories are unlikely to be threatened.

 

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