Written Commentary
NATURAL GAS
The pummeling of the natural gas market extended again overnight, and in the process has pushed prices down to the lowest levels since August 23rd of 2021. While we have been unrelenting in our coverage of the massive net spec and fund short position in natural gas, seeing the market decline $1.47 from the last positioning report probably puts the net short at the largest level since March 2020. Therefore, the natural gas market is heavily vested in the short side and is discounting the prospect of long-duration cold weather ahead. It goes without saying that the winter heating season has only just begun. On the other hand, mild temperatures did not negatively impact US usage last week as US electricity output for the week ending December 31st posted a year-over-year increase of 9.8%. In a possible fundamental sign of excess bearishness Bloomberg overnight indicated the natural gas market is in a death spiral. The path of least resistance remains down in natural gas with a 221 bcf weekly EIA withdraw judged to be soft.
CRUDE OIL
With concerns of slumping global energy demand primarily responsible for the recent crude oil slide of nearly $9.00 and crude oil nearing a major psychological price of $70.00 the energy trade is facing a major fundamental and technical junction. However, crude oil prices received significant support from fresh Chinese policies designed to assist the beleaguered real estate markets and support the general economy. Furthermore, traders noted a significant jump in Chinese crude buying from sources normally supplying Europe. From an intermediate time, perspective seeing crude oil prices falling to the lowest levels since January, retesting levels thought to spark a refilling of the US SPR and approaching levels that will likely see OPEC+ react aggressively prices should be nearing a low. On the other hand, traders see tanker rates at 4-month lows and a progressively negative skew in crude options as forces capable of pushing prices even lower. In a sign that the oil price cap might be having some influence, Russian Urals average prices fell to a 2 year low last month. In addition to the weather-related US Gulf Coast refinery shutdowns, demand for crude oil might be dented by reports that Colonial has shut down a pipeline flowing into New York Harbor. In a possible sign of slowing demand, US crude oil exports in November declined to 4.02 million barrels per day from 4.13 million barrels per day in October. While there were rumors of a 2-day cease-fire offering from the Russian, we suspect that might be the result of extremely harsh temperatures in Russia. Going forward, supply and news tilts in favor of the bear camp.
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