Written Commentary
NATURAL GAS
While a portion of the large speculative bear contingent is likely becoming impatient with recent sideways consolidation action, the natural gas market does not appear to be capable of forging a significant rally without significant improvement in global economic sentiment. In fact, even with a dramatic improvement in global economic conditions, extremely mild/bearish temperatures continue to lift the potential for a mild winter which reduces the prospect of a significant late in the season shortage. On the other hand, the temperature forecast for Europe will turn cooler next week but again without sustained arctic temperatures weather is unlikely to become supportive. Even with the looming restart of the Texas export facility, storage levels in Europe and the US are unlikely to see that export facility have a significant impact on prices until the end of the winter prompts the trade to fully factor in a mild northern hemisphere winter. The path of least resistance is down and with any assistance from economic slowing/inflation concerns we expect a downside breakout extension today.
CRUDE OIL
Today the energy markets are likely to take a break from focusing on internal fundamental issues and instead look to longer-term US economic prospects. With March crude oil prices into a very critical US inflation report (where recession fears from over tightening could be rekindled) sitting over $5 above the early February low, the market might be more sensitive to threats against demand than under normal conditions. While seeing Russian seaborne crude shipments for China hit a seven-year high is another sign of strong Chinese demand, that support is diffused because Russian supply continues to flow aggressively into the market. In another added overnight negative report that were indications that Russian oil drilling reached a decade high which contradicts the country’s announced 500,000 barrel per day reduction in output. Talk of a US SPR put under the February low is of little help to the bull camp today, especially with the US carrying out another SPR “sale”. Optimism toward Chinese oil demand is not only hinted at by aggressive Chinese oil imports and a significant jump in refinery throughput, but also by indications of increased road congestion in major Chinese cities and that provides positive demand chatter. Since we see recent flows in US crude oil supplies favoring the bear camp, without a risk on impact from CPI today, crude oil prices have a lot of pricing to give back. In fact, if inflation is hotter than expected, the Dow might fall by more than a thousand points and energy demand fears should surface in force.
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