Written Commentary
CRUDE OIL
In our opinion, the sharp downward thrust in energy prices today is largely the result of deteriorating energy demand expectations. Certainly, classic supply fundamentals remain supportive, but crude oil prices above $105 into what could be a global recession are very expensive. Furthermore, seeing the Biden administration present a plan to “cap” the price paid to Russia for oil acknowledges the failure of the plan to cut off Russian oil supply flow to the world. The primary driving force for crude oil prices directly ahead is the outlook for the global economy, as defined by action in global equity prices.
While the gasoline market this morning has shown the capacity to respect support at $3.60 in the August contract, the near-term trend looks to remain down. In fact, with Asian refinery margins posting record levels ($38 per barrel), and Asian imports on track to set another monthly record, imports of fuel into Asia might begin to soften ahead. Suggestions that the US might remove its fuel tax could be supportive of demand, and therefore could serve to cushion demand and prices.
NATURAL GAS
While the natural gas market managed to reject a noted downside spike extension yesterday, the slide in prices in the face of record regional electricity consumption in the US highlights the bear’s control. However, overnight the IEA indicated Russia may cut off gas supply “entirely” to Europe and therefore Europe needs to prepare for that potential quickly! It should also be noted that a significant Chinese heat wave has pushed power demand in that country to record levels.
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