Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex traded on both sides of unchanged but closed firm, with September crude gaining 49 cents to settle at 80.58. Gasoline finished higher by .49 at 2.8876 while heating oil attracted strong support to finish with a gain of 4.10 at 2.9498. The crude market was supported by expectations the Saudis will continue to extend their voluntary cut of 1 mb/d into September at the next OPEC Monitoring Meeting scheduled for August 4th. Support also emanated from US economic indicators that still suggest the economy is resilient despite higher interest rates. US GDP was reported yesterday at 2.4 percent in the second quarter against a 2 percent rate in the first quarter and expectations for an increase of 1.8 percent.
The strength to the US economy, the appearance that Chinese authorities will continue to take fiscal and monetary measures to support growth, and the moderation in availability of Russian supplies should continue to support values on pullbacks as inventories decline moderately into the 4th quarter. The availability of Russian products and crude are getting tighter as the premium to the price cap restrains interest. The potential for further declines in US crude and product inventories should underpin values, with an extension of the voluntary cut by the Saudis providing the basis for an upside move toward the 83.50-84.00 level. Support should arise near 75.50.
Natural Gas
The 2.65 support area was taken out yesterday as the September contract probed lower to settle at 2.595 for a loss of nearly 10 cents. Prices found scattered support today with an inside day on the charts, ending with a gain of just over 4 cents at 2.638. Weather continues to be the main driver of price movement as a minor loss of CDD’s in yesterday’s forecast had prices trading lower prior to the weekly storage report. The 16 bcf build was slightly below estimates, but prices slipped further after the release as trade appeared to have been hoping for an even lower number. Total stocks now stand 13 percent above the 5-year average. Lackluster LNG flows this week added to the downside pressure, with a dip under 12.5 bcf disappointing trade and rekindling concern over Europe’s ample storage levels. Late buying interest emerged today after the Baker Hughes release showed a decrease of 3 gas rigs. The steady drop since May has trade expecting output to begin to contract, but there has been no noticeable change at this point. On the downside, minor support should surface at 2.55 followed by 2.50. Resistance now emerges at the confluence of the 9, 20, and 100-day moving averages in the 2.64-2.66 range. A push through that area targets the recent highs near 2.76.
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