Written Commentary
CRUDE OIL
As in other physical commodity markets crude oil this morning is benefiting from short covering/relief buying. According to press coverage this morning, Indian crude oil buying has surged fivefold, and China is also attempting to soak up significant heavily discounted supply. In our opinion, the implementation of the oil embargo has been an unconditional failure and further reductions in Russian supply purchases from Europe and the US are more than offset by the flow of oil to the world’s two largest population countries. In the near term, price direction is likely to be dominated by big picture macroeconomic developments and not by casual internal fundamental news. On the other hand, crude oil could temporarily shape reports of strong Asian buying (on Bloomberg this morning) as a sign of recovering Asian demand even if that buying pulls Russian supply into the world market.
In retrospect, the product markets have held up significantly better than crude oil to the recent aggressive washout in crude oil and many physical commodity markets. However, without extremely strong seasonal demand underpinning sentiment, gasoline prices might have already failed at the $3.50 level in the August RBOB contract. In addition to the bearish build in gasoline stocks from the API earlier this week of 1.2 million barrels, weekly ARA gasoline stocks showed an increase of 7% with an increase to 1.14 million tonnes from 1.16 million in the previous week.
NATURAL GAS
While the press yesterday indicated natural gas prices fell through the floor because of a top of the range injection, several bearish issues contributed to the washout. Despite the weekly EIA petroleum report delay, the weekly EIA natural gas storage report was released on-time and showed an injection of 74 BCF and a slight narrowing of the deficit to the 5-year average storage level from 13.4% down to 13.2%. It is also likely that a slight moderation of extreme above-normal forecasts temperatures in both the 6 to 10 days forecast, and the 11 to 15 days forecast gives the bear camp ongoing confidence to press prices.
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