Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex saw weakness today as the September crude oil lost 68 cents to settle at 82.51 while the products showed deeper losses with the gasoline lower by 5.87 cents at 2.9062 and the heating oil off by 3.32 at 3.0883. Both the gasoline and ULSD cracks weakened. The uncertain outlook for China’s economy, ideas Saudi Arabia might pare back or eliminate the voluntary production cut after September due to budgetary considerations, and dollar strength curtailed buying interest. Weakness in the cracks was traced to the potential for gasoline demand to soften on a seasonal basis in the US and on weaker flows from Europe to Nigeria following the withdrawal of domestic subsidies, which are increasing Europe’s exports of gasoline to the US.
Although the crude market continues to focus on tightness tied to voluntary production cuts from Saudi Arabia and the possibility that supplies will tighten on the heels of a soft landing to the US economy, it does appear the deficit forecast in the second half of this year has been priced in as other factors begin to provide a headwind to values.
The US economy appears to be in good shape, but concern is growing over the Chinese and German economies. Evidence that crude stocks have built in both India and China suggests their import demand might contract as the price of Russia crude increases. In addition, a production recovery is underway in Iran, Libya, Venezuela, and Nigeria. The potential that they will take market share from countries that are currently limiting output might provide an incentive to back away from voluntary cuts, which could ease supply tightness as we move through the fall. Key to sentiment is the Industrial production report from China tomorrow with expectations for a 4.5 percent increase year over year.
This week’s DOE report is estimating that crude oil stocks will be off by 2.1 mb, gasoline lower by 1.6, and distillate down .4. Refinery utilization is expected to gain .5 to 94.3 percent.
Natural Gas
The market traded calmly to kick off the week, with an inside day on the charts leading to a settlement at 2.795 for a gain of 2.5 cents on the day. Weather reports saw minimal change from Friday, with above normal temperatures expected across the 2-week forecasts. The tendency for heat predicted in the back end of the outlooks to end up less severe when it is realized continues to reign in exuberance on the upside. Production remains stubbornly high, reaching near 102 bcf/d yesterday, as trade awaits signs of slowing from steadily dropping rig counts. Further upside will find resistance in the 2.89-2.91 range and then at 3 dollars. The 9-day moving average now at 2.71 remains key support. A settlement below there could lead to a quick test of the 100-day moving average at 2.60.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.
