Supply tightness everywhere you look. We have asphalt shortages in Texas, we have tightness of grain supply, aluminum shortages in China, copper tightness as well. Coffee prices are at a six-year high as demand is strong and the coffee crop has been damaged by frost and drought. We are in a commodity supercycle and even though sometimes it gets a little sloppy when we see corrections, the overall trend is up and supply is tight everywhere you look. The same could be said for oil in its action overnight. The market started a bit higher but seemed to fade as COVID-19 concerns still is an excuse to take the market lower as well as concerns about China cracking down on their financial sector.

Photo by Timothy Newman on Unsplash

Reports from private sources expect another drawdown in oil supply. We expect that overall good supplies are going to be down at least four million barrels this week. We believe we’ll see a correction from last week’s surprise build and we also expect to see a drawdown in gasoline inventories of 2.0 million barrels and distillates to fall by three million barrels. Refinery runs are expected to be up by 1.0%.

Bloomberg reported, “A selloff in Chinese private education companies sent shockwaves through the equity market Monday, as investors scrambled to price in the growing risks from an intensifying crackdown by Beijing on some of the nation’s industries. Stocks slumped on the mainland and in Hong Kong, with the benchmark CSI 300 Index dropping 3.2% and the Hang Seng Index tumbling 4.1%, the most since May last year. Steep losses in education stocks in the wake of a sweeping overhaul spilled over into other areas, with technology, healthcare, and property-related stocks falling. “Global aluminum production growth ground to a halt in the second quarter of this year even as prices rallied to multi-year highs on both London and Shanghai markets.

Andy Home of Reuters reports, “Aluminum producers struggle to respond to higher prices. He said that “Global aluminum production growth ground to a halt in the second quarter of this year even as prices rallied to multi-year highs in both London and Shanghai markets. Reuters reported that “Annualized run-rate dropped by 120,000 tonnes after rising by 590,000 tonnes in the first quarter of 2021, according to the latest figures published by the International Aluminum Institute (IAI). China, the world’s largest producer, continued to lift operating rates, unsurprisingly given Shanghai prices hit an 11-year high in June and the country’s demand has been running red hot.

However, the supply response to super-high prices has been muted by past standards, attesting to a string of power-related constraints on smelters in several Chinese provinces. In the rest of the world annualized run-rates have been gently sliding since March. The first-half production of 13.04 million tonnes was up only 0.7% year on year.

Andrew Weissman of EBW Analytics reports that “Natural gas futures posted huge gains last week after the early August weather forecast trended much hotter and prices at Henry Hub hit new highs for the summer. January gas was able to break through resistance at $4.00 on Tuesday, and August two days later on Thursday. With the hottest weather of the summer nationally forecast for Tuesday through Thursday of this week, with scorching temperatures extending into Texas and the Southeast for the first time and wind output expected to be low, prices at Henry Hub could continue to rise potentially enabling the August contract to remain above $4.00 early in the week. The trajectory later in the week depends heavily upon the early August weather forecast. The European weather model hemorrhaged CDDs this weekend, predicting unseasonably cool weather starting next weekend, while the American model remains red hot. If the very mild European solution prevails, the front-month contract could sink significantly over this week.