Energy Prospectus

Happy Independence Day to all Americans. Yes, oil & gas is trading higher this morning.
Opening Prices at 9:10AM ET
> WTI is up $1.22 to $71.01
> HH ngas is up $0.04 to $2.75

Bloomberg - Brent Oil traded near $76 a barrel as traders assessed the latest efforts from OPEC+ linchpins Saudi Arabia and Russia to prop up prices by curbing supply.

Brent climbed 1.7% in London, though volumes were subdued due to the July 4 holiday in the US. In a flurry of announcements Monday, Saudi Arabia said that it will prolong a unilateral 1 million barrel-a-day supply reduction into August, a move that was widely expected by traders. Russia announced a reduction in exports and output, while Algeria planned to make more modest curbs.

Prices have been volatile since the announcements, though Tuesday’s gain offered a more positive outlook for producers. In addition to renewed gains in headline prices, there are also signs of bullishness in the futures curve, with Brent’s nearest timespread closing at its strongest level in about a month on Monday, indicating expectations of tighter supply.

“Oil is rebounding after yesterday’s weakness as the latest move from Saudi Arabia and Russia is being re-assessed,” PVM Oil Associates analyst Tamas Varga said in a note. “The current balance suggests a massive supply deficit in coming months if these cuts are implemented.”

Crude prices are also running up against a major technical hurdle. Brent futures pierced their 50-day moving average on Monday, but failed to close above that level. They’ve generally struggled to move far beyond that marker since prices became rangebound in late April.

Natural Gas

Trading Economics:
US natural gas futures have been fluctuating within a $0.5 range, remaining around $2.7/MMBtu to kick off July. Prices rose 18% in June, extending the second-quarter gain to around 26% and are expected to continue to increase throughout the summer due to a slight decline in production and an anticipated rise in demand for air conditioning, leading to higher usage of natural gas in the electric power sector, according to the EIA.

Closing Prices for AUG23 NYMEX contracts
> WTI gained $1.21 to close at $71.00
> HH gas gained $0.039 to close at $2.748. The DEC23 contract closed at $3.625. < If ngas prices stay near these prices through July, I will increase the Q3 gas prices used in my forecasts from $2.50 to $2.75 and the Q4 ngas price from $2.75 to $3.25.

By Irina Slav for Oilprice.com at 10AM CT < IMO Irina is one of the best at OilPrice.com

It seems that despite conflicting forecasts on oil demand in the second half of the year, traders have picked the pessimistic road. OPEC and even the International Energy Agency, as well as most investment banks, expect a rebound in demand. Yet the World Bank warned last month that global growth would slow down during that same second half, dragged down by inflation and the response of central banks to it.

Interestingly enough, the World Bank forecast is not all that pessimistic. It actually revised upwards its outlook for the global economy in its latest update. Yet demand pessimism appears to have become a fixture of oil markets lately, keeping prices lower despite production cut commitments.

Things could yet turn around later this year. Despite the eurozone’s recession, China’s slower-than-expected recovery, and doubts about U.S. growth, the world continues running on oil. Sooner or later, output cuts would begin to affect prices. Unless the demand outlook gets even grimmer than it appears to be now, based on oil trader behavior.

If demand proved to be resilient in the face of economic slowdown challenges, however, prices could reverse course swiftly and sharply. Reuters’ Kemp wrote that “extreme pessimism towards crude prices and lopsided positions are creating potential for an explosive rally in future.”

Meanwhile, the head of commodities research at ING noted that “Fundamentals are not having as much influence on price direction as one would expect. Instead, the uncertain macro outlook is what the market is focused on.”

This basically means that traders do not even care about actual demand right now. What they care about is the direction demand would take in the immediate future based on things like factory activity and consumer spending. And this may blindside them in case China, for example, picks up the pace of recovery or the Fed ends its rate hikes ahead of schedule.
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IMO if Rystad Energy, Raymond James and UBS forecasts that demand for oil now exceeds supply by over 2 million barrels per day, we should see some very bullish weekly and monthly storage reports. If so, and IEA sticks with their bullish oil demand projections, we should see Kemp's forecast of an "explosive rally" in the oil markets come true this quarter. I believe it will just take less fear of a recession to "light this candle".