Written Commentary
NATURAL GAS
While natural gas prices remain close to last Friday’s low for the move, they have posted back-to-back positive daily results for the first time since mid-January and only the second time since early December. From a technical perspective open interest in natural gas has exploded to the highest level since December 21st of 2021 at the same time trading volume has declined and technicians see that combination as a possible sign of an exhaustion low. The EIA’s latest Short-Term Energy Outlook saw a reduction in their 2023 Henry Hub average price forecast, which is now at a 50% discount to their 2022 reading. Updated forecasts have warmer than normal temperatures across the eastern half of the US through mid-February, and that continues to weigh on natural gas prices. The Reuters survey predicted a range of natural gas stock withdrawals this week from 187 BCF to 210 BCF, but this would keep gas storage above the 5-year average for this time of this year. With a sizable net spec short position, natural gas prices are vulnerable to a sizable, short-covering rally. As a result, the natural gas market should continue to find longer-term support near last week’s lows.
CRUDE OIL
With the crude oil contract extending the late Monday recovery attempt with yesterday’s rally and adding more gains this morning, crude oil has now posted a low to high rally this week of more than $6.00. In addition to steady improvement in economic psychology crude oil is deriving lift this morning from a decline in API crude oil stocks of 2.1 million barrels yesterday and from comments overnight from Europe indicating they need Russian oil and oil products. Not surprisingly, the trade continues its positive Chinese oil demand track and that is generally confirmed by a 23% increase in US crude oil exports last year. Furthermore, expectations are widespread that with a continuation of the war and gradual improvement in the Chinese economy the growing US export trend will continue. Along those lines IEA forecasts call for Chinese oil processing to reach 14.4 million barrels a day this year and are expected to reach capacity levels in the first quarter. Furthermore, the oil market managed the gains yesterday in the face of predictions from the EIA that US 2023 production would increase by 590,000 barrels per day versus a previous projection of an increase of 550,000 barrels per day (last month). Yet another bearish development from the EIA were projections that US energy demand would basically remain “flat.”
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