Written Commentary
CRUDE OIL
While the energy markets saw global supply failing to meet rising demand earlier this month, sentiment now sees the market closer to balance as demand softens. While the US administration is considering a fuel tax holiday, the potential for demand to improve significantly from that policy change is limited. Furthermore, a plan from the administration to implement a “price cap” on Russian oil suggests the ban on Russian supply has been largely surrendered. In fact, reports are Chinese imports of Russian Urals crude oil supply are likely to reach a record this month of 300,000 barrels per day, highlights holes in the embargo effort.
With Bloomberg headlines this morning indicating fuel prices are helping lift crude oil prices, seasonal demand running strong and a significant oversold condition from the $0.67 decline from this month’s highs, temporary upside follow-through is expected. However, some analysts are already beginning to anticipate the peak in seasonal demand and in turn are suggesting gasoline prices in August futures above $3.83 were the result of a perfect storm of tight supply and strong demand. With demand becoming more suspect by the day the big Bull Run has likely concluded.
NATURAL GAS
We think the back of the bull market in natural gas has been broken with Germany ratcheting up coal fired electric generating capacity and LNG in floating storage jumping 23% in the latest weekly figures. Furthermore, limitations on US exports from a recent fire and the lack of bullish reaction to extremely hot US temperatures signifies the bear’s control. In fact, natural gas this morning has gapped lower and is seemingly poised to decline to the lowest levels since April 11th.
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