Written Commentary
NATURAL GAS
With a significant gap up move yesterday reversed, the $7 level becomes significant resistance and yesterday’s low of $6.487 becomes thin support. Like many markets yesterday, the natural gas market might have experienced position squaring ahead of key US economic events. However, reports that US heating degree days last week were 25-degree days below normal should give longs pause. In fact, given last week’s bottom of the range weekly withdrawal from EIA storage, the below normal heating requirements last week projects another small withdrawal this week. Surprisingly, the president of Ukraine’s request for the G7 to help them secure an additional 2 billion cubic meters of natural gas failed to have a big impact on the market yesterday. While big picture macroeconomic events over the coming 36 hours could have a fleeting impact on natural gas prices, the sustained focus of the natural gas market should remain on upcoming temperature forecasts. This week’s Reuters poll pegs EIA gas in working storage to decline by 36 BCF to as much as 49 BCF.
CRUDE OIL
While the shift in Chinese news flow favors the bull camp (increased Chinese home sales and gains in property shares) that pro-demand news could reverse without notice. However, Bloomberg overnight indicates that traffic congestion has returned in China and China has signaled further lessening of activity restrictions regarding international travel. In a surprising longer-term supportive development Bloomberg indicates that US shale production activity is slowing, and wells are going uncompleted and that is clearly the result of the massive November slide in crude oil prices. In another supportive fundamental supply-side development, the Keystone pipeline leak has been labeled the largest since 2010 and for some that creates the potential for a longer outage. While it is unclear the impact of Russia’s official reaction to the implementation of the price cap, seeing Russia refuse sales to those supporting the cap is unlikely to prevent the supply from reaching the international market. Certainly, it is possible that getting to the Fed pivot (transitioning from very aggressive to less aggressive rate hikes) helps energy demand views but we think the energy markets yesterday were merely benefiting from short profit-taking ahead of a very significant volatility window. In fact, into the low last Friday, crude oil prices were trading $13.34 below the December highs and the net spec and fund long positioning was likely near the lowest levels of the pandemic era. However, the backlog of tankers in the Bosporus strait has declined, thereby reducing the impact from a major energy transport traffic jam. As of this writing, the restart date for the damaged Keystone pipeline is unknown and this week’s Reuters poll projects crude oil stocks to decline by 3.9 million barrels. In today’s action, macroeconomic market action is likely to dominate over classic internal fundamental news.
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