The petroleum complex traded under pressure with crude values succumbing to selling in product markets following early strength. Reports that Chinese Industrial Production and Retail Sales in June had shown a stronger than anticipated increase of 6.3 percent and 9.8 percent respectively over year ago levels helped underpin values early; but the buying failed to be sustained as Chinese GDP at 6.2 percent in the second quarter undercut sentiment and continued to point to sluggish growth due to the trade tensions. The cautious tone on the upside and renewed pressure on values likely reflects the bearish connotations of the IEA Monthly Report Friday that showed the potential for a surplus developing in 2020 if further action by OPEC to cut production is not taken. The appearance that Tropical storm Barry which had reduced crude production by 73 percent in the Gulf of Mexico appeared to have done little damage while refineries saw little curtailment to operations due to the storm. The limited disruption particularly at refineries pressured product markets as adequate inventory levels and sluggish demand encouraged bearish sentiment.
The RBOB and RBOB crack showed the sharpest losses with flat prices off as much as 5.00 cents per gallon while the crack weakened from near 20.60 on Friday to 19.50 today. Ideas that inventories are adequate globally along with sluggish demand in the US helped undercut values. In the background, were reports throughput at Chinese refineries had risen to a record 13.07 per day in June an increase of 7.7 percent from a year ago.
The market will likely continue to focus upon economic prospects, Chinese trade negotiations, risk to shipping in the Persian Gulf and the DOE stocks this week. The prospect that the Fed will lower interest rate at the next FOMC meeting at the end of this month along with a seasonal tendency for US crude stocks to draw down seasonally should help underpin the market. This should help provide the basis for further upside movement in prompt WTI toward the 63.00 area basis September and potentially 66.00 before bearish fundamentals reassert themselves. Values continue to flirt with the 100 day moving average on August crude at 59.63 on the 100 day and 59.07 on the 200 day moving average.
Forecasts that temperatures would not be as warm as previously forecast in the 8-14 day appeared to encourage profit taking following the strength apparent last week. In the background, were lower shipments from Cherniere which appeared to have been disrupted by Tropical storm Barry due to platform closures and delays to ship arrivals. Reports suggest that the amount of gas flowing to the Cherniere facility was expected to drop to 3.1 mcf today from as high as 3.7 bcf during the weekend. Expectations for the EIA report Thursday point to an injection of 65 bcf compared to 46 bcf last year and 63 bcf for the five year average. Todays breakdown should attract follow through with potential to test the 2.32-2.33 level near term basis August.
Charts Courtesy of DTN Prophet X
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 views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff. 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 ADMIS position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to. The authors of this piece currently maintain positions in the commodities mentioned within this report. Charts Courtesy of DTN Prophet X, EIA.
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