Written Commentary
CRUDE OIL
Despite moderately bearish API inventory readings from yesterday afternoon, the crude oil market has bounced and climbed above yesterday’s high. Apparently, positive views toward improving global energy demand stubbornly remain in place with the market today potentially seeing the US Federal Reserve outcome as a positive. Evidence of improving global energy demand today include record high Asian January oil flows of 123.2 million metric tons, 5-month highs in US exports to China of light, sweet crude, stronger Middle East key benchmark prices for the new month, and residual hope for an acceleration in the Chinese economy from the removal of activity restrictions. While expectations for the OPEC+ meeting suggest no change in output restrictions will be implemented, the cartel early this week indicated they will remain vigilant and can reduce production outside of scheduled meetings.
In addition to a slight improvement in global economic psychology the gasoline market derived significant support from a Bloomberg story with the headline “fuel made from Russian oil is keeping New York from running out”. Countervailing the supply tightness theme is a 2.3% rise in US retail gasoline prices last week as that could discourage some demand. Like the crude oil market, the gasoline market showed significant weakness early yesterday but then managed a very significant bounce off the low of $0.10. The noted recovery yesterday might have been partially the result of EIA data for November showing an increase in both crude and petroleum demand in November (the latest available). Offsetting the increase in demand from the EIA are expectations for the US refinery operating rate to reach the highest levels since December 23rd.
NATURAL GAS
While the natural gas market continues to show respect of this week’s spike low of $2.6120, supply and demand expectations remain in favor of the bear camp. In fact, yesterday the EIA pegged lower 48 state (US) gas production in November up from the prior month by 0.2% and up 3.9% from November 2021 production. The bear camp is further emboldened by periodic mild temperatures surfacing in the middle of the northern hemisphere winter. However, a surprise bullish development that could become material is a reduction in Russian pipeline shipments through Ukraine and current extremely cold temperatures in large portions of the US.
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