Written Commentary
CRUDE OIL
While the crude oil market likely saw some selling from escalating global demand fear following a recent developing pattern of soft global data, the downside breakout and extension to the lowest level since early June on Friday was likely prompted by US/Russian talks scheduled for this Friday in Alaska. In addition to the disappointing US July jobs data the markets have also saw a precipitous contraction in Chinese July producer prices which in our view ratchets up the likelihood of recession in China. In another bearish demand development, the additional US 25% tariff on India is reportedly likely to reduce overall Indian product exports to the US by 60% which should be seen as a bearish global economic development which in turn should add to the fear of softening global energy demand. Another sign of soft oil demand is seen from news that Saudi Arabia expects to see its oil supply flow to China next month fall back from two-year highs to 1.4 million barrels per day versus 1.65 this month. Also adding into near term price pressure is a series of reduced oil price forecasts from analysts and the looming September OPEC+ production increase. In addition to higher production from OPEC+ next month the trade also saw signs of burgeoning production from South America likely prompted by strong buying by those anticipating US indirect sanctions against Russian oil (bringing oil demand forward).
NATURAL GAS
With a “gap down” trade this morning and a new contract low, bearish fundamentals continue to dominate the natural gas market. While the natural gas market posted a net spec and fund short of 78,446 in the latest COT report, the market retains significant selling fuel and might not be sold out until the net spec and fund short reaches four year lows with a net short more than 129,000 contracts. For now, it should be noted that Russian Arctic LNG loadings continue with the fourth tanker recently loaded despite US sanctions.
PRODUCTS
Unfortunately for the bull camp both gasoline and ULSD both have relatively large “net spec” and fund long positions (especially ULSD) could result in the products falling faster than crude oil prices. Clearly, US gasoline supply is the most burdensome throughout the petroleum complex, with supply holding above year ago and five-year average supply levels over the last four weeks.
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