The markets generally have continued to stabilize after the Greeks appear to have backtracked in their willingness to accept certain austerity measures as a condition of further financial assistance and the measures that the Chinese government instituted to bolster her failing equity markets appear to have worked for the moment.
The Greek prime minister has put forth a proposal that seems to acquiesce to the needed measures for her creditors to continue with another round of bailout funds. However, it does still have hurdles to clear with ratification needed from Greek parliament as well as acceptance from the European Central Bank, IMF and other lending entities--though it is obviously a step in the right direction for those hoping to keep the European Union intact.
As a result, commodity prices across the board are modestly higher with the most significant affect manifesting in the equity indices and in bond yields. Should there be some finite resolution to this during today’s session then it would be reasonable to expect significant follow through in the price discovery. However, if the deal falls apart then a downside correction, possibly a violent one, could be in the cards as traders will certainly be concerned about holding long positions into the weekend.
Energies have started to put these events in the rearview mirror to some extent and revisit the fundamentals more particularly aligned with their price discovery. The IEA released a report overnight that was rather bearish in its tone stating that supply should continue to outpace demand for the balance of 2015 and into mid 2016. With U.S. production ramping up once agai--as hedging, industry consolidation and price stability have made it possible for producers to tweak their needed price for profitable fuel production--the supply picture continues to remain very strong. Couple that with OPEC continuing at record production and global demand lagging and there is some rational for a bearish bias.
U.S. gasoline demand is at a 10-year high as refiners are at max capacity possibly offsetting some of the bearish sentiment. Further bullish bias can be found in the breaking down of Iranian talks that, even if eventually worked out, would mean Iranian crude wouldn’t be coming into the global supply picture well into the end of 2016.
Yesterday’s natural gas supply data was very modestly bearish with a build of 91 BCF vs. the expected 86 BCF. As eluded to in yesterday’s newsletter, it would take a significantly bearish report to push the price any lower at these already very low levels. In fact, the price is now trading modestly higher as the report is being shrugged off to some extent.