Written Commentary
CRUDE OIL
In retrospect, the crude oil market surprised the trade yesterday with a fresh contract high in the face of news of a sharp increase in July Saudi oil prices to Asia. Apparently, the Saudis are confident they will continue to see strong customer demand as they raised their price fix to Asia to $120 per barrel. Furthermore, the bull camp has already raised near term demand projections off the reopening of China. Some analysts suggest prices are being bid up by views that an Iranian nuclear deal was becoming less likely rather than more likely. On the negative side of the ledger, India continues to solicit Russia for heavily discounted cargoes.
While the gasoline market did not hold its fresh record high price of $4.3260 in the July contract, the bias remains up off progressive expansion of seasonal demand and storage levels in the US remaining at significant deficits to year ago levels. Even though the Reuters survey on this week’s EIA data has not been released at this time, we expect analysts to predict further tightening of stocks and perhaps another implied gasoline demand reading above 9 million barrels per day. Another supportive development for gasoline is last week’s 0.6% drop-in refinery activity. In a very minor supportive development, there was a fire at a refinery in the UK.
NATURAL GAS
In our opinion, the gap higher extension in natural gas futures prices caught the global gas trade by surprise. Certainly, record cooling demand in Texas and significantly above normal temperature projections for various regions in the US out 16 days provided lift for the market. A key catalyst for new contract highs this morning is a report that LNG on floating tankers for at least 20 days fell by 23% on a week over week basis. Another potential significant bullish development is word from a top Australian LNG exporter suggesting Australia is facing a domestic gas crisis of its own!
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