Written Commentary
NATURAL GAS
With another higher high for the move and the highest trade in August natural gas since March 22nd, the bull camp is apparently acknowledging pockets of extreme heat around the globe. While we doubt “pockets” of record temperatures will notably shift the US supply and demand surplus toward balance, the bear camp is certainly threatened by evidence of increased global cooling demand. Fortunately for the bull camp, one of the extreme hot pockets is located throughout the US Gulf states and into the southwest states. According to NOAA, US cooling demand into July 1st is expected to run 15 cooling degree days above normal with Texas, Louisiana, and New Mexico likely to post the highest cooling demand relative to normal. In fact, extreme record heat in Texas has been touted overnight by Bloomberg to result in an unprecedented jump in power demand. Furthermore, record heat in Beijing projects historical demand for electricity generated by coal which should lift coal prices and therefore make natural gas more attractive. At least temporarily, the global gas supply and demand pendulum has shifted in favor of the bull camp. However, for the bull camp to dominate will require a significant “cleanup” of excess US supplies with sustained record temps.
CRUDE OIL
Despite a slight risk on mentality from global equity markets early today, crude oil prices remain pinned down below $70.00. In fact, despite higher equities, upbeat views toward the global economy are not widespread and global central banks continue to keep inflation expectations anchored with threats of a series of rate hikes ahead. Clearly, the markets were not impressed with predictions from Saudi Aramco of a “sound” 2nd half oil market Outlook predicated on continued strength in Chinese and Indian demand. However, the crude oil market showed almost no reaction to the potential for upheaval inside Russia, indicating the oil markets lack bullish sensitivity. It should be noted that Russian 2023 oil production is critical to the world supply chain with output pegged at 10.75 million barrels per day and Russian exports last year reaching nearly 5 million barrels per day. Furthermore, demand for Russian oil is expected to remain strong with China and India aggressively capitalizing on Russian price discounts. Even if it appears a regime change is underway in Russia, the crude oil market might not see that development as a bullish development. Nonetheless, some traders think the Russian turmoil has put Putin in a weakened position and therefore harder sanctions could facilitate his loss of power. While we are not sure what the ramifications are, traders think ultra-strong Russian exports have resulted in nearly $1 billion of revenues disappearing somewhere in the middle of the supply chain.
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