Written Commentary
CRUDE OIL
In retrospect, it did not take long for the abatement of US and UK inflation to result in a chain reaction that ultimately lifted 2023 energy demand expectations. However, outside market influences on energy prices are likely to continue again today with the guide for the energy trade immediately after the Fed statement today coming from action in the equity markets. While the final all clear on inflation has not been registered yet, a major headwind for energy demand next year has been moderated. In fact, the international energy agency overnight projects Chinese oil demand recovering after its 400,000 barrel per day contraction this year. The IEA thinks total 2023 oil demand “growth” will be 1.7 million barrels per day or a consumption rate of 101.6 million barrels per day. A limiting development came from Bloomberg analysis indicating Russian crude oil production in November increased by 96,000 barrels per day on a month over month basis. Countervailing the bearish increase in Russian November crude output is the fact that total OPEC November oil output declined from 29.5 million barrels per day to 28.8 million barrels per day. In addition to upbeat economic psychology, the softer than expected US CPI report benefits the bull camp in crude oil from its negative impact on the value of the US dollar. While the Keystone pipeline disruption is a bullish supply issue, there are alternative transportation solutions which limit the bullishness of the leak. On the other hand, the trade does expect to see some tightening supply impact on various US crude storage readings because of Keystone but unless there is an unforeseen delay in restarting the line its impact on prices should moderate. While the trade expects this week’s US EIA refinery operating rate to decline marginally the overall rate looks to remain very high, thereby keeping good demand for crude in the prompt markets. After the close, the API survey said that US crude oil stocks had a weekly increase of 7.819 million barrels which was in sharp contrast to trade forecasts for a sizable weekly decline.
NATURAL GAS
The presence of cold weather in the US, UK and Northern Europe should be a sustained underpin for natural gas prices in the near term. However, some forecasters have already forecasted the US Arctic blast to potentially entrench which could prompt a dramatic upward revision in US demand expectations. Unfortunately for the bull camp the Freeport LNG export terminal has reportedly been presented with fresh regulatory requirements before they are allowed to restart that facility. Therefore, the rate of US exports should remain steady with strong lower 48 US production likely responsible for last week’s bottom of the range withdrawal from storage. In retrospect Europe at the beginning of this month felt they would survive the winter without significant problems. However, that sentiment could be questioned now if the first major cold system lingers in northern Europe.
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