CRUDE OIL
The bull camp sees the increase in Chinese January through August and 2023 August oil imports versus August 2022 as signs of residually strong demand. In fact, the Chinese January through August imports reached 378.55 million tons versus only 330.13 million tons last year. However, the bear camp thinks aggressive Chinese imports are largely strategic supply rebuilding and/or they think aggressive Chinese refinery throughput rates are pulling in crude oil imports as Chinese refiners take advantage of profitable conditions. However, recent Chinese trade data, German factory orders and Chinese PMI readings have signaled slowing despite an extending wave of Chinese economic stimulus programs. It should also be noted that some market analysts think Chinese energy demand will slow in the shoulder season and signs of a wave of US Covid infections should not be discounted as a US demand threat. In the end, China is removing crude supply from a world market thought to be in a daily supply and demand deficit of 2.3 million barrels. According to Goldman Sachs they see the current world oil market in a 2.3 million barrel per day shortfall which is clearly the result of sustained production restraint by Russia and Saudi Arabia. However, the bull case in crude oil is not entirely based on signs of residual demand strength in China as US, European and global floating crude oil supply continues to tighten. After the close, the API survey said that US crude oil stocks had a weekly decline of 5.52 million barrels which was a much larger weekly decline than trade forecasts. In addition to undying optimism toward Chinese demand, the charts have become overbought, and we detect a loss of upside momentum ahead.
NATURAL GAS
The bull camp is left to “hope” the market has already embraced a host of bearish forces and in turn has over factored those supply and demand signals. However, with a seasonal cooling of temperatures underway, the prospect of major inventory draws from high temperatures in the US and Europe are on the decline. On the other hand, a developing storm in the Atlantic could create some concern among the bear camp, especially if prices become more oversold. The bull camp should note that Tropical Storm Lee has drifted to the north of the Dominican Republic which increases the likelihood the storm will not impact natural gas production. This week’s Reuters poll projects EIA natural gas in working storage to increase by 33 BCF to 65 BCF. The path of least resistance remains down with both supply and demand elements favoring the bear camp.
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