Written Commentary
NATURAL GAS
Despite volatile price action, natural gas was finally able to put some brakes on its 5-day session losing streak and could see upside follow-through during today’s action. However, the bull camp desperately needs a draw on inventories today at the upper end of the range of estimates and an expansion of the deficit to 5-year average stock levels. January natural gas had sizable early gains before falling all the way down into negative territory followed by a late recovery move as it finished Wednesday’s whipsaw session with a moderate gain. The EIA increased their 2023 US gas production forecast up to 100.4 billion cubic feet per day, which was a source of pressure on natural gas prices. Reports that the US has agreed to supply the UK with natural gas exports may have provided additional strength, but the holdup on reeport’s LNG export terminal coming back online has limited any near-term support to the market. The latest 6-to-10 and 8-to-14-day forecasts show a shift towards colder temperatures west of the Mississippi river, which should result in stronger power plants and heating demand for natural gas. Today’s EIA storage report is expected to show a moderate weekly withdrawal. Natural gas prices have seasonal weather working in their favor and are on-track for a positive weekly reversal from Monday’s 8-month low. If today’s EIA net withdrawal is larger than expected, natural gas prices should head towards filling their Friday/Monday chart gap.
CRUDE OIL
The path of least resistance is down in crude oil with prices remaining near yesterday’s spike low and the market unable to benefit from news that China was relaxing Covid restrictions, Iraqi November oil output declined and Chinese November crude oil imports posting ten-month highs. In our opinion, overall petroleum prices are sliding because tightness in product markets is dissipating quickly. In retrospect, EIA crude oil stocks have declined by nearly 26 million barrels in the past 4 weeks and have seen their year-over-year deficit leap, but that is very likely the result of an extremely high US refinery operating rate. While the market received positive demand news out of China earlier this week, it was not enough to offset a lukewarm domestic demand outlook. While global risk sentiment has seen some improvement this week, crude oil and the products remain vulnerable to further downside price action. The energy markets were able to rebound from overnight pressure, but they fell back on the defensive as crude oil and the products posted sizable losses for Wednesday’s trading session. Moves by Chinese authorities to reduce their Zero Covid polices provided initial support as that should improve their near-term demand outlook. Chinese crude oil imports last month came in above October and above year-ago levels which gave a further boost to energy prices. In addition, reports that several tankers are being held up by insurance issues and cannot travel from the Black Sea to the Mediterranean, provides some support for crude oil prices
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