Written Commentary
CRUDE OIL
While the crude oil market was pummeled to a 5-day low and broke through the $105.00 support level, that washout was aggressively rejected. In fact, into the close yesterday July crude oil recovered by $6.65 and managed those gains in the face of ongoing demand destruction fears from deteriorating views toward the US economy. However, a portion of the aggressive liquidation yesterday was also the result of US efforts to increase supply flow from Venezuela and from pressure on Saudi Arabia to raise output. On the other hand, Chinese April purchases from Saudi Arabia jumped by 38% which is obviously an artifact of the embargo. In another negative supply-side development China apparently has acquired another 2 million barrels of Iranian oil for its strategic supplies and that oil was mostly unavailable to many global buyers because of Iranian sanctions.
While the gasoline market yesterday also fell precipitously because of a spike in energy demand fears, the market aggressively rejected the spike down and has forged a higher high early in the session today. With the aggressive rejection of the washout, RBOB should have balanced the overbought technical condition into this week’s high. Given record Asian refinery margins the incentive to refine more products globally is there but that also indicates an unsolved tightness. Furthermore, European refiners are also battling for input supply and occasionally seeing margins fluctuate wildly.
NATURAL GAS
While the natural gas futures gyrated wildly yesterday, they ultimately found chart support at the $8.00 level. However, the July natural gas contract this morning has returned to yesterday’s spike low level and has a slightly higher bull/bear line at $8.05 today. Certainly, seeing a shift into a questionable risk on environment, a 14% increase in British wholesale day ahead prices, notice that Russia will halt gas flows to Finland tomorrow all provide fundamental support for the market. However, Finland is apparently moving quickly to substitute Russian supply with the purchase of floating supply tankers in Helsinki. With US LNG margins becoming even more profitable to Europe, US exports should continue at a pace allowable by capacity restraints.
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