Written Commentary
CRUDE OIL
While July crude oil is tracking lower this morning, prices did manage a fresh high for the move initially and remains near the highest levels since March 24th. On the other hand, the market is facing bearish fundamental news flow in the form of an 11% weekly rise in floating global crude oil supply, fresh demand fears from soft Chinese data, and projections that Iraq will post output targets this month and next. In an indirect negative, reports overnight verified Chinese coal and gas power prices fell sharply last month, because of factory lockdowns. Furthermore, reports that Chinese refinery rates are declining, points to softening demand for fuel in China. Nonetheless, the energy markets continue to show the most bullish resiliency of actively traded physical commodities.
With fresh record futures price this morning and more retail pump price gains expected, the gasoline market has extended its leadership role. In fact, worldwide refineries have been unable to match demand and seasonal demand is scheduled to rise for the coming 3 months. As of the last EIA weekly report, gasoline stocks were at levels usually seen after the end of the high demand driving period. Fortunately for the bull camp, the most recent positioning report showed a relatively low net spec and fund long compared to the last 8 months. However, Chinese oil refining activity was reduced due recently because of softer demand from ongoing lockdowns.
NATURAL GAS
Certainly, large portion of natural gas gains over the last couple months were expectations of a progressive reduction of consumption of Russian gas. While the reduction in Russian gas exports has declined it has not declined at the pace expected by the market thereby causing the early May high to low washout of $2.53. While the natural gas market on the big failure day of May 10th aggressively rejected the spike down, adjusted into that low the net spec and fund short likely approached the largest short since April 2020.
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