Written Commentary
CRUDE OIL
In our opinion, the crude oil market continues to outperform on the upside given current fundamentals. In addition to a wave of risk on optimism flowing from equities, the crude oil market was lifted yesterday because of a much larger than expected weekly decline in EIA crude oil stocks. However, with a portion of the sharp decline in crude oil stocks thought to be the result of temporary problems at the Keystone pipeline, the bullish impact from the tightening evidence this week could be temporary. Surprisingly, WTI continues to make higher highs in the face of a 5th straight daily outflow from the United States Oil Fund. Even more surprising is ongoing strength in petroleum prices following reports that the Covid flares in China have disrupted supply chains which has in turn disrupted industrial production.
Despite a lengthening string of weekly gasoline inventory inflows over the last several months, it is possible there will be a slight kink in US fuel demand from today through Saturday as a massive storm discourages travel. However, it should be noted that EIA implied gasoline and distillate demand both increased notably this week and the four-week moving average of gasoline demand also increased for the first time in 4-weeks. Furthermore, the trade this morning has been presented with forecasts of additional gasoline consumption ahead of the holiday and from reports that adverse weather and surging LNG prices are idling some ethanol production. On the other hand, US implied gasoline demand has held below 10-year average and year ago levels for 11 straight weeks.
NATURAL GAS
The natural gas market continues to embrace negatives and discount positives. However, the inability to post a lower low for the week this morning in the face of evidence that EU consumption dropped by more than 20% in the August through November timeframe suggests the bear camp has lost its incentive. A prime example of the markets shaping the outlook in favor of the bear camp recently is the markets’ ability to “look beyond” the severe Arctic winter storm traversing the US to milder post weekend temperatures. However, as of this writing, there were reports of reduced US production from frozen US gas wells with single-digit and negative temperature readings in Oklahoma expected on Friday.
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