Written Commentary
CRUDE OIL
With crude oil prices starting 2023 with the highest print on the charts since December 5th, followed by a sharp WTI reversal (prices at times were trading $4.25 below the initial highs) the technical picture is very bearish. Furthermore, the fundamental picture in crude oil remains bearish from both supply and demand perspectives. In fact, Saudi Arab cut light crude prices to Asia to 15-month lows in a sign of demand fear from that area. Bearish supply news was also presented yesterday with OPEC crude oil production estimated to have increased by 150,000 barrels per day last month (with a total production of 29.1 million barrels per day). The market was also presented with news that weekly crude in floating storage increased by 11% on a week over week basis. Yet another negative overnight bearish supply headline pegged weekly ARA crude storage climbing 6.8% versus week ago levels. Another bearish supply development came from Brazilian exports which posted at 8.79 million tonnes per day in December versus only 5.91 million tonnes in the previous December. Yet another negative supply force from yesterday came from Bloomberg reports that the largest Chinese oil and gas field posted record output in 2022. Even the demand side of the equation started 2023 off on a very negative tone with IMF forecasts calling for ongoing inflation and recession this year.
NATURAL GAS
In addition to news that the Russian national gas company predicted record December gas supply flows to China, the gas market also saw ongoing gas shipments to Europe through Ukraine from Russia. Certainly, Chinese gas demand destruction fears added to the liquidation on Tuesday especially with European leaders continuing to press their constituents on aggressive energy conservation efforts. Other factors contributing to the downward bias in natural gas prices going forward are the building prospects of achieving a warmer than normal “start” to the northern hemisphere winter. Certainly, the natural gas market is significantly oversold from a short-term perspective and from a longer-term fundamental perspective especially with prices trading $0.51 below the level seen prior to the Russian invasion of Ukraine. Unfortunately for the bull camp, the bears have protection from a mild temperature forecast through the end of this week.
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