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Very Modest Strength in Crude Prices

CRUDE OIL

The bull camp should be disappointed with the very modest strength in crude oil prices early this morning after Yemeni rebels launched an attack against Israel and Saudi Arabia retaliated against the rebels. Furthermore, the market has not embraced a 3.9% jump in Indian September crude oil imports and a 9.6% jump in first half Indian diesel sales. Clearly, disappointing Chinese PMI data leaves Chinese energy demand expectations disappointing and the market appears to have temporarily lost its bullish sensitivity to Middle East developments. In an indirect negative for crude oil Russia has resumed diesel exports with the explosion in domestic prices moderating and allowing supply to leave the country. While there did not appear to be justification for the easing of concerns of lost supply from the Middle East event this week, the market at the end of last week pushed prices sharply higher anticipating major threats against supply from Arab reactions to the onslaught of Gaza and that did not happen. However, the crisis is not by any measure moderating given the intensity of Israeli attacks and the rising ire of all parties involved.

sunset oil pump

NATURAL GAS

With a gap down failure this morning the recent rally has been reversed and prices are likely headed back to the mid-August low down at $3.216. We have been very skeptical of the recent rally in natural gas as a shift to cooler temperatures this early in the season does not signal the potential for strong early heating demand. However, some buyers are possibly concerned of major Middle East supply interruptions which could spill over into natural gas. In fact, with the 2023 net spec and fund short peak in natural gas 142,000 contracts and last week’s 51,000 contract net short, bearish sentiment in natural gas is moderating. With the post COT report rally of $0.32 it is possible that natural gas has seen the smallest net spec and fund short since March of 2021.

 

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