Written Commentary
CRUDE OIL
With fear of aggressive US rate hikes, very discouraging German jobs data and deteriorating economic sentiment from declining equity markets, energy demand destruction has returned. Patently entrenched supply-side factors in the US energy markets are starting to moderate the structure of the bull market. Fresh negatives facing crude oil this morning include an OPEC+ plus meeting expected to yield another 648,000 barrels to their output limit, reports of precipitous Russian sales to India and trade chatter regarding tanker flow toward Europe. Countervailing the bear track this morning is the potential for an oil workers union strike in Norway and the reality that OPEC+ has not lived up to their promised return of supply from the beginning of the unwinding decision. However, with the ULSD market extending an already massive June washout, bullishness toward the energy market with the most bullish supply and demand condition (until mid-June) highlights a bearish shift in sentiment.
Like the corn market, the gasoline market sits at an extremely critical junction, with the July 4th driving holding the psychological and statistically peak of summer demand. In fact, reports of less holiday travel have surfaced with consumers suggesting high costs on nearly all consumer goods and services are preventing some trips. Furthermore, weekly implied gasoline demand has not picked up in normal seasonal fashion. Even the supply side of the equation saw bearish news from the EIA report with increased gasoline supply production likely in the wake of the highest US refinery operating rate since September 2019. While gasoline stocks remain very tight on year-over-year and historical comparisons, gasoline stocks have increased for 2 straight weeks and the year-over-year deficit has narrowed for 2 weeks.
NATURAL GAS
While the natural gas market forged a 4-day high yesterday, the market failed to sustain the rally and, in the process, shifted the charts in favor of the bear camp. In our opinion, the bull camp has been fortunate in their ability to shape US weather forecasts into a supportive argument. However, Germany reported a 35% decline in gas use last month because of modest temperatures and the trade expects a negative reaction to the EIA storage report this morning. On the other hand, the threat of an oil worker’s strike in Norway and a 4.8% jump in US electricity output last week (from year ago levels) has helped August natural gas respect a mini consolidation support level of $6.417.
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