August crude oil prices trended higher throughout the US trading session, supported by the lack of progress in resolving an oil workers strike in Norway. Another source of support for the crude oil market came from weakness in the US dollar and ideas that weaker than expected global economic data could prompt central bankers to pursue more monetary stimulus. The product markets were also higher, supported by gains in crude oil and prospect that leaders in China could move to lower domestic gasoline and diesel prices in a maneuver to stoke economic growth.
So far the natural gas futures market has recovered about 2/3 of the loss from Friday's session as the market rethinks the impact on demand from the hot weather in the US even as the economics of coal to gas switching are still biased to the coal side. At the moment the macroeconomics comparing the spot Nymex Appalachian coal price to the spot Nymex Nat Gas price is favorable to the coal side. This coupled with the robust level of coal inventories at many utility sites should result in the utility sector starting to switch back to coal at the expense of Nat Gas for power generation. This is certain to have an impact on demand and will eventually have a negative impact on the underperformance of injections that has been experienced throughout the injection season so far.
On the other hand the massive heat wave that has engulfed a major portion of the US for the last several weeks is cooling down in the south for the next 6 to 10 days. However, the above normal temperatures are projected to return during the 8 to 14 day forecast period. As such Nat Gas cooling demand will likely be above normal for most of the month of July and possibly beyond that. However, the big question is ...will the above normal level of cooling related Nat Gas demand be enough to compensate for the loss of demand from switching back to coal for power generation. I do not think it will be enough and as such I still view the current level of Nat Gas futures prices to be overvalued or better said ahead of the price level that the current fundamentals would support.
Perhaps the gold market was lifted by soaring grain prices or perhaps the gold trade was simply inspired by a revival of easing prospects from the Chinese. It is also possible that gold and other physical commodity markets were lifted as a result of calls to extend the Bush tax cuts for lower incomes. It is also possible that gold saw its fortunes boosted by a bounce in the Euro, which at times was hopeful of some fresh maneuvering from EU officials.
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