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Sharp Recovery Extension in Crude

CRUDE OIL

The sharp recovery/upside extension in crude oil this morning is justified by a series of developments. Obviously, the most significant bullish force is the overnight hospital bombing in Gaza which in turn has canceled a peace summit in Jordan and clearly increases the prospects of a broadening of the participants in the conflict. While not as significant as the Middle East developments, the API yesterday indicated crude stocks fell by 4.4 million barrels with the products also showing falling inventories. Adding minimally to the bullish vibe in today’s early action is a week over week decline in global crude in storage and a more significant bullish impact from Chinese official directives requiring gas suppliers to fill storage ahead of winter. The ramping up of Chinese refinery runs might be justified following a Bloomberg forecast overnight that Chinese apparent oil demand has reached the highest level since 2010.  Clearly, the Saudis have a different view of what constitutes a supply emergency and what prices levels are extreme.

Oil pump jacks at sunset

NATURAL GAS

With Chinese officials overnight directing Chinese gas suppliers to refill inventories, natural gas sees the first definitively positive demand story in several weeks. Even though Chinese officials indicated the domestic gas market is “generally in balance” ongoing year-over-year Chinese demand gains and looming heating demand has inspired the government to order full restocking. However, the gas market is limited by a National Weather Service forecast of above seasonal normal temperatures in the 8-to-14-day US forecast. Nonetheless, the path of least resistance is down in natural gas as US weather is bearish to the end of the month. In fact, despite hope of increased US exports to its neighbors, record production has been registered again in the US which should embolden the bear camp. Apparently, private estimates are projecting record US gas production this month from the lower 48 states which is likely to provide the first triple digit injection of the year next week.

 

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