Written Commentary
CRUDE OIL
While it is not unusual, the crude oil market continues to be almost exclusively driven by emotion and at times by baseless geopolitical arguments. In fact, over the last two weeks the crude oil market saw a three-day slide of $16.50 followed immediately by a three-day recovery of $11 per barrel. During those price swings we did not see a specific structural change in tangible supply or demand factors. Along those lines, there is complete confusion on the presence or absence of talks between the US and Iran, with the president elevating his threats to include peace or decapitation which clearly gives the edge to the bull camp. In fact, Iran if anything, has been extremely stubborn and has weathered significant pounding and more importantly has continued to strike at its neighbors.
Oil pump jacks at sunset sky background. Toned.
PRODUCTS
The energy product markets are a tale of two cities with extremely tight gasoline stocks and distillate inventories in line with year ago supplies and rising seasonally. It should also be noted that seasonal patterns in total distillate inventories show supplies being rebuilt through the end of the shoulder season (from softening demand). In fact, total distillate stocks over the past eight weeks have bounced by 10% and typically continue to be rebuilt until the second week of September. However, both ULSD and RBOB have diverged with crude oil recently and are not seeing emotion driven rallies. Despite extremely low gasoline supplies (approaching the lowest level since late 2014) the RBOB market managed a gap-lower opening to start the week and shows very little signs of “bounce”.
NATURAL GAS
Like many physical commodity markets, the natural gas market has settled into another sideways consolidation pattern. However, the sideways consolidation action in natural gas has created three lower pricing “step downs” since the middle of June and the market lacks bullish buzz. We suspect extremely hot temperatures in the US and Europe combined with the unending bottleneck in the Strait of Hormuz has provided a temporary pause in the long sustained downtrend in natural gas prices.
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