Written Commentary
CRUDE OIL
With market sentiment expecting further incursion of the Ukraine and the release of additional sanctions the path of least resistance in oil remains up. However, so far sanctions have been viewed as “soft” and have not specifically targeted energy. However, the West is unlikely to sanction Russian energy exports unless Putin’s actions are extreme, and Russia shows signs of taking the Ukraine capital. While the bear camp will point to crude oil prices $4.50 a barrel below yesterday’s high as a sign of a blowoff top, technical signals look to take a backseat to fundamental developments. However, with the flare-up in crude oil prices yesterday, the market reached the highest price level since 2014 in a fashion that confirms the market’s fear of eventual sanctions against Russian energy exports.
With the significant reversal from yesterday’s highs, we see the short-term overbought technical condition of gasoline moderated. Nonetheless, gasoline demand continues to show slow and gradual improvement despite high prices at the pump. In fact, Vietnam overnight is reported to be suffering significant shortfalls in fuel supply which has forced the shutdown of some retail gasoline stations. However, there are also reports that Middle Eastern product supply has recovered especially in distillates.
NATURAL GAS
While the natural gas market did not hold the brunt of the initial gains forged yesterday, the market likely saw the resolve of a large net spec and fund short dissipate. Issues keeping the bear camp back on their heels include upcoming cold weather in Europe, signs of cold weather-related buying from China, and talk that Russia had Chinese commitments to purchase Russian energy supplies in place before they launched the attack. Therefore, the potential for a disruption of all Russian gas flows to Europe becomes more economically palatable for Russia. Additionally, the Germans have shut down the Nord Stream 2 project, but no supply was flowing through that pipeline.
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