NATURAL GAS
At least in the early going today, natural gas prices have recovered from the 4-day downside breakout yesterday and we attribute that action to a definitive improvement in global economic sentiment overnight. However, near-term US temperature forecasts favor the bear camp with extreme heat restricted to Gulf and Southwestern states and mostly offset by below normal temperatures and precipitation in other areas. However, the bull camp should see minimal support from extreme temperatures in London which has resulted in health alerts. More importantly, European temperatures are expected to stay above seasonal averages from Britain to Germany and in northwest France. In a minimally supportive supply-side development, US wind generation has remained below normal since April. The path of least resistance has temporarily shifted up, but fundamentals have not shifted in favor of the bull camp yet.
CRUDE OIL
Given the flood of positive global economic news overnight in the form of a Chinese interest rate cut, expectations of further stimulus for the Chinese economy, signs of moderating inflation and an extension of the US equity market rally, traders might have expected crude oil to have forged bigger gains in the early going. Apparently, some traders saw the Saudi unilateral production cut as an act of anxiety which in turn might be a signal of an impending oversupplied market. Other analysts suggest the unilateral Saudi production cut highlights the threat of supply overwhelming demand and fears of increased oil supply from Russia, Iran, and Venezuela. Furthermore, traders downgraded the prospects of an improvement in Chinese energy demand following news of a 3-million-barrel Chinese crude oil Unipec “sale” in Oman. In fact, the trade expects another 3-million-barrel sale from the Chinese national oil company which could be a price arbitrage or could be a sign China is short-term overbought. Unfortunately for the bull camp, the EIA yesterday raised US oil output to a record high for the month of July with shale producing regions also projected at the highest levels ever.
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