Recession Fears Sparke More Demand Concerns

CRUDE OIL

September Crude Oil extended last week’s selloff overnight and fell to its lowest level since February 5 off heavy selling in equity markets in Asia and Europe. This followed a selloff in US stock markets on Friday in the wake of the disappointing jobs report that sparked fears of a US recession. Concerns about weak demand from China have weighed on crude prices recently, and the steep selloff in Asian equities overnight adds fuel to those concerns. The market has found support from time to time on ideas that an escalation of hostilities in the Middle East could interrupt supply, and Iran’s threats of retaliation for the recent killing of a Hamas leader in Tehran could bring some of those concerns forward. US Defense Secretary Lloyd Austin has approved sending additional Navy cruisers and destroyers to the region that can shoot down ballistic missiles, as well as an additional squadron of fighter jets. So far, the Mideast War has not interrupted supply to any significant degree. OPEC production reached 26.7 million barrels per day last month, up 100,000 bpd from June. Friday’s Commitments of Traders Report showed managed money traders were net sellers of 27,320 contracts of crude oil for the week ending July 30, reducing their net long to 211,917. This is toward the middle of the historic range and is neither overbought nor oversold.

PRODUCT MARKETS

The product markets were lower overnight in synch with the selloff in crude oil. Friday’s Commitments of Traders Report showed managed money traders were net sellers of 9,088 contracts of RBOB for the week ending July 30, reducing their net long to 13,070, their smallest since July 2017. These same traders were net sellers of 198 contracts of ULSD, increasing their net short to 15,329. This is their biggest net short since September 2020 but far from the record net short of 45,372 from November 2015. September ULSD fell to its lowest level in more than a year overnight. US distillate stocks are up 7.6% from a year ago but are 6.6% below the five-year average. Low diesel usage in China has been in the news recently. Four out of five analysts surveyed by Reuters last week called for China’s diesel demand to fall 2%-7%  in 2024 because of their , with move to LNG-powered vehicles

NATURAL GAS

September Natural Gas traded to new contract lows overnight, under pressure from the steep selloff in equity markets. Hurricane Debby is expect to hit landfall in Florida today and move in the northeasterly direction into Georgia and the Carolinas and bring flooding to those areas. It also looks like LNG terminals will be missed, but the potential for power outages could lower overall gas consumption. European gas prices were under pressure this morning from stronger Norwegian supply. The weather forecast call for a mix of hot and cool temperatures across the US over the next couple of weeks, which should keep cooling demand at a moderate level. The 6-10 and 8-14 day forecasts call for above normal and much above normal temperatures in the south third of the US and in the Pacific Northwest, but the northern half of the lower 48, from the Rockies to the  Eastern Seaboard, is expected to see below normal to normal temperatures. Friday’s Commitments of Traders Report showed managed money traders were net buyers of 2,182 contracts of natural gas for the week ending July 30, reducing their net short to 53,317. This is close to an historically neutral position.

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