Written Commentary
CRUDE OIL
With a poor close last Friday and initial downside follow-through pushing nearby crude oil futures well below critical consolidation low pricing of $75, the bear camp starts the trading week with a technical edge. Seeing daily new Chinese Covid cases balloon to record high territory, accompanied by protests in several major Chinese cities, could foster demand destruction fears that embolden the bear camp. While the implementation of the global price cap for Russian oil is approaching, some buyers may have pulled back on their purchases. However, in a world market (especially for oil), buyers are likely to buy at prices they deem attractive regardless of an international embargo.
Both product markets have started out under pressure, although RBOB and ULSD have held up better than crude oil throughout the month of November. Unfortunately for the bull camp, neither market appears to have any close-in support, and they both seem vulnerable to further selling. Furthermore, the spec and fund net long in gasoline is overbought relative to the last 90 days, leaving the January gasoline contract vulnerable to a quick slide down to $2.20. However, EIA gasoline stocks remain 11 million barrels below the 5-year average, a persistently stronger than normal US refinery operating rate has been unable to rebuild inventories.
NATURAL GAS
While the natural gas market showed divergence with petroleum prices for most of last week, the markets seem to be back in sync this morning with natural gas posting a moderate loss. The market had gotten short-term overbought with the $2.00 November rally. Prices should draft residual support from last week’s EIA storage report, which showed the first withdrawal of the season. The storage level entered the new season with a 1.1% deficit to the 5-year average. Supplies are tighter than last year at this time and could become much tighter if US export capacity returns to normal in the weeks ahead with the much-delayed restart of the fire-damaged Freeport facility.
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