Oil suffers from slowing Chinese consumption

The following table compares my projections for this week's report (for the categories I am making projections) with the change in inventories for the same period last year. As you can see from the table last year's inventories are mostly in the same direction as the projections. As such if the actual data is in line with the projections there will only be a modest change in the year over year comparisons for most of the complex. 

I still think the oil price is overvalued. I am keeping my view at neutral for oil as the market seems to have switched from being primarily driven by geopolitical risk and the prospects for additional qualitative easing to concerns over the evolving debt situation in Europe as well as the slowing of the global economy. WTI seems to be working its way back into the $80 to $90/bbl trading range while Brent is moving back to the $95 to $105 trading range. There are a lot of dynamics that will impact oil prices in the short term and the ranking of the price drivers are fluid and very susceptible to changing. The only constant for oil prices in the short term is above normal levels of volatility.

I am keeping my view at neutral as the hot weather that has persisted across major portion of the US  has subsided a bit and the rest of July is not likely to be as hot over the entire US as it was for the second half of June. In addition the economics of coal switching now favors coal which will result in a reduction in Nat Gas demand. Finally Nat Gas at current price levels is overvalued and is becoming more susceptible to a round of selling.

Currently markets are mixed as shown in the following table.

Best regards,       

Dominick A. Chirichella

dchirichella@mailaec.com

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