Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex rallied strongly with the gasoline crack continuing to firm. Crude settled 1.67 higher while RBOB gained 8.24 cents and ULSD was up 2.60. The strength was linked to recent actions by China to support their economy, reports of active demand for US crude exports from Asia and away from Middle East crude, and on the Russian attack on Ukrainian granaries along the Danube River. Ideas that a potential interest rate hike by the US Federal Reserve has been priced in provided background support enabling values to surge through recent resistance.
Reports that China had unveiled measures seeking to promote private investment in infrastructure projects helped to confirm recent speculation regarding their boosting of the domestic economy. In addition, US crudes have been in demand due to the uncompetitive pricing of Middle Eastern grades, helping sway sentiment on the long side. The news that Russia had attacked Ukrainian granaries along the Danube following the dissolution of the Black Sea grain deal last week also raised concern over an escalation of the conflict.
Today’s move sets up the potential for a test of the highs reached in April near the 82.00 area despite the potential for an interest rate hike at this week’s Fed meeting. Some selling might be apparent at the higher levels in advance of the OPEC Monitoring Committee meeting on Aug 4th on ideas that values have advanced enough that Saudi Arabia might not extend their voluntary output cut into September.
The DOE report on Wednesday will be watched closely for stock movement on gasoline, ULSD and the crude on how tight stock conditions are getting. The report is expected to show a decline of 2 mb in crude, .1 in distillate and 2 mb in gasoline. Refinery utilization is expected to gain .4 to 94.7 percent.
Natural Gas
The market traded on both sides of unchanged to start the week before ending marginally lower at 2.688 on the September contract. Weekend forecast revisions ititially moved prices higher as heat intensified in the 1-7 day outlooks, but it also gave some signs of a quicker return to normal temperatures in the back half of the forecast. Production also moved back up to the 102 bcf/day range to put a negative tone in the market, but that was offset by a coinciding improvement in LNG flows to 13 bcf over the weekend. The South Central region, which has experienced the most severe conditions in terms of temperature, continues to experience good renewable generation, which is taking some of the pressure off the grid. With the next two weeks bringing a continuation of record demand expectations, the path of least resistance is up, with prices having put in a top near 2.76 for three consecutive days. If a settlement through that area can be achieved in the next few sessions, the market could test the 2.87-2.91 range marking the June highs. Initial support near 2.67 held up today, with the next level below there at the 9-day moving average of 2.61.
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