The sick and twisted terror attack in Nice, France has put some pressure on crude oil overnight. France will go into lockdown mode as events surrounding the Bastille day holiday will be canceled, reducing travel and demand for oil. It is a travesty that we have to once again write how an evil act and its toll on the human condition will impact oil demand and the overall economy. While we can say the economic impact might be limited, the pain in the hearts of people lives impacted by this repugnant act will never go away.
Crude oil might have seen some support from data out of China, easing concerns that Chinese oil demand was faltering. Reuters reported that China's June refinery output was up 3.2% from a year earlier at 45.08 million tons, or 10.97 million barrels per day (bpd)-- the highest on a daily basis ever, according to data from the National Bureau of Statistics. At the same time, China's domestic crude oil production during the first six months of 2016 fell 4.6% from a year ago to the lowest level since 2010.
Talk about China’s demand destruction has been wildly overplayed and rumors that they are close to finishing filling their oil reserves just are not true. Of course, with global economic turmoil, demand for oil may change but so far the stimulus fueled demand momentum in China seems to be growing.
As we have written, for oil, $44.00 a barrel is the line in the sand and we feel this will be its bottom. Of course, if we take that out, I would expect other markets around the globe to start to fall. A break below $44.00 would mean the world is going to see more economic contraction and we will see a drop in oil and gas related investment. We will look to trade off of the $44.00 handle for position trades. and day trades and swing trades will be based on intraday day market movement. Long term, look to use weakness to buy long dated oil calls and long term strategies.
Natural gas lost more ground on its cushion on the five-year average even as the weekly injection came in higher than the average projection. The Energy Information Administration reported that working gas in storage was up 64 bcf versus the 59 bcf expectation but the cushion over the five-year average fell to 22%. That was over 50% not too long ago. With next week injection perhaps falling below 20 BCF, we will continue to cut into that cushion. When the heat hits we should spike. If you’re a gambler you can buy the short dated August calls.
Our prayers are with our friends in France. We all must unite around the world to do whatever it takes to end this scourge of terrorism. We are all in this fight together. Vive la France.