Written Commentary
CRUDE OIL
Crude oil prices were nearly unchanged this morning after pushing lower overnight, but they remained well below their late-January highs. It appears that crude oil and the products need to see stronger global risk sentiment to regain upside momentum. The strong US jobs report on Friday initially pulled prices higher, but the market lost momentum and violated some key chart support levels, which opened the door for heavy selling. The markets seemed to discount several positive headlines, such as a sharp, 13.2% increase in Spanish crude imports for December and increased uncertainty regarding product availability with the start of the EU ban on Russian fuel imports. The Baker Hughes US oil rig count on Friday showed rigs in operation declining by 10 rigs last week to 599. This was the largest decline since June 2020 and was the lowest total number since September. Over the weekend an official with the International Energy Agency (IEA) said that major oil producing nations may have to reconsider their output policies following a demand recovery in China. The Saudi oil minister said that sanctions and underinvestment could lead to a shortage of energy supplies in the future.
NATURAL GAS
Natural gas traded in a narrow range overnight and managed to hold above Friday’s two-year lows. The market has fallen 40% since the start of the year and is deep into oversold territory, and it may not take much in the way of bullish supply news to fuel a short-covering rally. Despite steep declines in other energy markets, March natural gas finished Friday with only a moderate loss. However, it finished the week with a loss of 43.9 cents (down 15.4%), for the seventh negative week in a row. A report that January US temperatures averaged 41.8 degrees Fahrenheit (their second warmest on record) has weighed on prices. The EIA storage report this week is expected to show a sizable draw, but the total will likely remain well above the 5-year average. There are indications that the Freeport LNG export facility will restart soon, but it may not reach full capacity until mid-March. The COT report has been delayed, but we think the spec net short position could be approaching its 2020 high. After the brutally cold weather this past weekend in the northeastern US, heating demand may be larger than initially thought, which could set the stage for a short-covering rally.
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