Written Commentary
CRUDE OIL
While the crude oil market has become significantly oversold with the overnight low in August sitting $31 per barrel below the high posted last month, one could argue the market still holds $5.00 worth of war premium. We measure war premium from the gap opening on March 2nd (when the markets began to aggressively price war supply concerns) and to fill that gap requires an August trade down to $66.29. Even though we see more declines ahead and there are signs the market is approaching a deflated fundamental level, global oil producers are unlikely to pull back production quick enough to avoid an oversupply condition. Along those lines, Iraq is aggressively soliciting OPEC for a significant expansion of its production quota, with rumors they are threatening to leave the cartel if their quota is not lifted. It should also be noted that Iraqi officials have denied they are threatening to leave OPEC.
PRODUCTS
Like the crude oil market, the gasoline market should continue to price in prospects of a dramatic oversupply scenario as the backlog of oil from the Middle East is set to reach ports all over the world at the same time as the northern hemisphere sees seasonal gasoline demand start to fall. According to the UN 57 ships have transited the Strait of Hormuz in the last 48 hours. Also like the crude oil market we see gasoline futures prices retaining a noted war premium of $0.50 which we derive from the gap up trade on March 2nd.
NATURAL GAS
Clearly, the natural gas market continues to be unfazed by the sharp ongoing washout in petroleum prices, with early strength today seemingly targeting the top of the recent consolidation up at $3.326 in August natural gas futures. Apparently, confirmation that LNG tankers continue to move through the Strait of Hormuz (as confirmed by Qatari officials) is not concerning to the bull camp. According to the UN 57 ships have transited the Strait of Hormuz in the last 48 hours and that gives credence to Qatari projections that there LNG production will reach 50% of normal in the next month and will reach 80% of normal within two months.
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