European Gas Prices Weaken

NATURAL GAS

While there have been reductions in Nordic Hydro electricity generation and less wind power output from Europe, the supply side of the equation in natural gas remains in favor of the bear camp. In fact, European gas prices have weakened this morning off expectations of less demand from cooler temps and from economic slowing fears. While not a major definitive impact on natural gas prices, planned outages by a Norwegian gas company have been altered at several facilities creating a small measure of supply uncertainty. However, the US demand front generally remains supportive with ultra-hot temperatures in Texas and forecasts for much above normal temperatures over a large portion of the US expected into the Fourth of July. Unfortunately for the bull camp near-term US temperature forecasts have ultrahigh temperatures limited to Texas with a spread of extreme heat only expected along the southern border of California, Arizona, and New Mexico. In a negative longer-term development, a recent Japanese quarterly outlook report for Japanese fuel import volumes, costs, consumption, and inventories suggests there will not be a significant shift from Japanese coal used for electricity generation to Japanese gas generated electric power. Currently US temperatures are not hot enough or widespread enough over the coming 4 days to support prices.

CRUDE OIL

While the crude oil market is offering little direction/bias in the early going, that action is justified by countervailing energy demand news. On the one hand, Bloomberg indicates traffic patterns in Asian-Pacific, Europe, and North America continue to accelerate while global sentiment remains concerned about the lack of growth in the Chinese economy. A general “risk off” mentality to start the holiday-shortened week caused crude oil prices to reverse early gains yesterday, potentially setting the stage for further corrective action today sparked in part by a global risk off environment and by offsetting demand developments. Apparently, the trade was disappointed with a Chinese rate cut as the markets were hoping for specific details on widely anticipated industry-specific stimulus program. In retrospect, seeing the Chinese National Petroleum Corporation reduce its Chinese 2023 energy demand growth forecast could discourage some bargain-hunting buying directly ahead. However, while the Chinese National Petroleum Company lowered the pace of annual energy demand growth in 2023 for China, the government oil company also indicated they expect energy consumption in the second half of 2023 to speed up. While the Chinese registered record Russian oil imports in May and estimates project June Russian oil tanker shipments to China will increase by 6% over last month, the bullish impact of that consumption is mitigated by the fact that China is relying heavily on Russian supply which the markets thought would be locked in from sanctions at the beginning of the war. Apparently, Russia oil tankers headed to China are at 12-month highs and China is expected to receive roughly 1.5 million barrels per day. Therefore, it does not appear as if Russia is complying with its commitment to cut production along with other OPEC plus nations.

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