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Energy Brief for July 22 2022

by Stephen Platt and Mike McElroy

Price Overview

The petroleum complex continues to attract buying on setbacks, with supply uncertainty offering underlying support. Some upside interest was seen in response to Russian comments that crude and products will be redirected to other countries if a price cap on Russian crude is adopted by major Western powers in the 4th quarter. Although concerns remain over the recent weakness in US gasoline demand, signs that Asian and Indian demand has been stronger were bolstered by news that demand for gasoline and distillate in India rose by 18 percent above year ago levels to record highs in June as refineries were reportedly running at their highest rates ever. The buying interest continues to be tempered by signs that the global economy is slowing and thus limiting consumption growth. The Fed meeting next week will likely shed further guidance on how these concerns are playing out. 

The questions over the future availability of Russian natural gas and oil to Europe as we approach peak hurricane season in the US from August through September and the need to build inventories ahead of winter will likely limit downside potential to the 94.00 level basis September crude. For the most part it looks like the bulk of bearish news has been discounted in the absence of a global recession. Low inventory levels along with the uncertain global petroleum supply should continue to provide support near current levels and suggests the potential for crude to test the 109-110 level in the intermediate term.  

Natural Gas

Prices reached the 8 dollar level yesterday, spurred on by the weekly storage report that showed a build of only 32 bcf. Expectations had been in the 45-47 range, and prices reacted by quickly trading up to the days high. Early morning action today saw lower prices as flows returned to Nord Stream 1 and offered some brief relief, but that didn’t last as weather updates added CDD’s to the 15 day forecasts and prices began working higher. Stop loss buying above the 8.10 area were flushed out as the September contract traded to an intraday high at 8.293 before settling with gains of 38 cents on the day at 8.195. Hot temperatures in the US continue to be the driving force behind recent strenght, as poor liquidity adds to the severity of moves. The market likely remains well supported near term as forcasts currently point to next week being one of the hottest of the last 40 years. The market reached a 68 percent retracement of the June break today, and the upside looks void of much obvious resistance until the contract highs near 9.60. The speed of the rally has upped the likelihood of a severe retrenchment when it comes, with initial support likely in the 7.15 area and then down at the 100-day moving average near 6.84.

The authors of this piece do not currently maintain positions in the commodities mentioned within this report.

Charts Courtesy of DTN Prophet X, EIA, Reuters


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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.

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