Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex attracted good selling interest as a worldwide cyber outage disrupted operations at some trading houses. Macroeconomic conditions had the greatest influence, with the uncertain economic environment in China weighing on US equities. In the background were renewed hopes of a Gaza ceasefire, which Secretary Blinken indicated is in sight. September crude settled off 2.69 at 80.13.
The Third Plenum of the Communist Party in China ended yesterday with no firm steps to reinvigorate the economy, prompting disappointment in the petroleum complex The lackluster growth is giving more credence to the belief that supplies will exceed demand in the fourth quarter, helping to offset the buying linked recently to crude oil stock declines in the US. OPEC+ is scheduled to begin unwinding voluntary production cuts, but whether it occurs is an item of speculation. They will hold a joint ministerial monitoring committee meeting on August 1st to review the market and no change in policy is expected.
The failure of the Chinese Communist Party to take decisive action to reinvigorate their economy, and particularly the property sector, was a source of disappointment for the crude complex and raised doubts over ideas of stronger growth trends in 2025 as espoused by OPEC in their monthly report. It suggests that production restraint will need to continue in order to hold prices near current levels. This will become more difficult, particularly if members continue to overproduce and fail to compensate for overproduction evident earlier this year. Signs the US economy is slowing along with concerns over the pace of growth in China and Europe will continue to offer overhead resistance on ideas that inventory levels might not fall as much as expected in the third quarter, and on the potential for a stock build in 2025 if OPEC unwinds its production cuts later this year.
Natural Gas
The market saw a wave of buying following yesterday’s storage report, gaining 9 cents on the day as profit taking aided the move. The 10 bcf injection was well below estimates near 27. Total stocks now stand at 3,209, which is 465 bcf, or 16.9 percent, above the 5-year average. Prices pulled back today before finding additional short covering into the weekend to settle near unchanged levels at 2.128 basis August. Production remains ample in the 101-102 bcf range while LNG continues to struggle, athough inflows have crept bact up to the 11 bcf area. This along with weather demand currently running near normal has kept the market constrained on the upside. The back end of the forecasts are pointing to a return of heat, and this will need to materialize to avoid further downside. The 9-day moving average near 2.21 will offer initial resistance on upside follow-through, and will need to be violated to conjure up additional short covering. A return to the downside will find support at 2 dollars and failing there the target would be the gap on the weekly chart at 1.848.
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