Written Commentary
CRUDE OIL
Despite a general improvement in Chinese economic signals, crude oil prices this morning have posted a three-day low and appear to be poised for further declines. While this week’s EIA report will be delayed due to the Monday holiday, this week’s Reuters poll predicts an inflow of 4.3 million barrels which will extend the streak of inflows to four weeks. Furthermore, an “as expected” inflow to crude stocks would result in 20 million barrels flowing in over the last four weeks. Fortunately for the bull camp, weekly crude in European storage declined by 4.3% and that combines with complaints that US producers have not plugged 40% of wells required from oil leases which ended between 2010 and 2022. Furthermore, the requirement to shutter 50% of oil platforms operating on expired Gulf leases has also not been enforced which could mean US production could be reduced quickly if the Department of interior steps up and does its job. A technical underpin for crude prices is the fact that the net spec and fund long positioning in crude continues to remain near 15-year lows. Another minimally bullish development are signs that India will increase purchases ahead but seeing Russia dominate those sales severely tempers lift from favorable Indian demand signals.
NATURAL GAS
While the technical picture for natural gas improved slightly with the early sharp rejection of new contract lows, we suspect cooler temperatures will have a very limited if any sustained impact on prices. However, given the net spec and fund short in natural gas is nearing the largest level since May of last year, it could become increasingly more difficult to press prices lower.
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