Written Commentary
CRUDE OIL
While crude oil prices have not forged a lower low, prices sit just above yesterday’s low and appear to be poised to extend on the downside. In fact, despite a surprise attack of a cargo vessel in the Strait of Hormuz (reportedly by Iran) the markets do not appear to be sensitive to bullish geopolitical developments. In our opinion, every day the Strait of Hormuz sees normal flow increase the prospect of oversupply into destination ports grows. In fact, Middle East crude oil benchmark prices have registered significant declines this week and reached multiyear lows from in the increased supply flow. Seeing Middle East crude oil prices reach “multiyear lows” in the wake of what was expected to be the most significant and sustained supply problem in years confirms a full puncturing of the “war bubble”.
PRODUCTS
Our confidence in the product market bear case was emboldened this week by increases in EIA inventories in the three major categories of gasoline, distillate and diesel. Furthermore, seasonal analysis suggests a rebuilding of product supply ahead which is likely to be compounded by a very high US refinery operating rate. In fact, EIA gasoline stocks saw an inflow of 2 million barrels which narrows the year-over-year deficit to the lowest level since the middle of May.
NATURAL GAS
While this week’s chart pattern favors the bull camp, we are beginning to doubt the natural gas market will be able to reach three-month consolidation-highs at $3.375. Certainly, the natural gas market has managed to hold up in the face of a massive ongoing slide in the petroleum market, but the trade seems to be ignoring the reality that natural gas is also moving through the Strait of Hormuz.
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