Written Commentary
NATURAL GAS
While the January natural gas contract managed to build the first sideways consolidation of note since the second week of November, prices have now forged new contract lows and have nearly fallen off the bottom of our charts. However, fundamentals do not appear to be capable of supporting a sustained turnaround. In retrospect, last week’s US production and storage was bearish with a surprise injection of 10 BCF and a significant jump in the surplus to the five-year average storage level of 9.8%. Therefore, supply looks to continue to add to already burdensome global supply. Unfortunately for the bull camp, the most recent COT positioning report showed a net space and fund short at half the level seen in February when prices were trading above $4.20.
CRUDE OIL
With the very poor close at the end of last week and the fresh lower low for the move early today forged in the aftermath of the latest OPEC+ attempt to support prices and in their words “balance world supply”, the markets have embraced the idea that OPEC+ may have exhausted their capacity to support prices. In fact, a large portion of the trade thinks OPEC+ compliance may also be lacking. However, if prices were to break into the 60’s, extreme OPEC+ measures could be seen. However, the bear tilt in the market is solid with demand also thought to be contracting. Yet another threat against demand surfaced over the weekend from the COP28 conference as the head of the United Nations called for a complete eradication of fossil fuels. In addition to a significant consecutive daily declines in US “pump” prices, EIA gasoline demand has been softening and crude oil inventories at the EIA last week saw their year-over-year surplus double from 16.3 million barrels to 30.5 million barrels. In a potential bullish development, US enforcement of sanctions over the shipping of Russian oil above the price cap could support prices if the efforts are successful. From the US production side of the equation, the weekly US oil rig drilling count increased by five to 505 rigs which is the highest operating tally since September. Fortunately for the bull camp, the net spec and fund long in crude oil has dropped down aggressively with the most recent reading the lowest since November 2012.
PRODUCT MARKET
As indicated in today’s crude oil coverage, US retail gasoline “pump” prices have continued to fall through the floor, and at one point posting 60 straight days with a decline. Furthermore, the EIA report showed implied gasoline demand falling for the fourth straight week with the reading of 8.2 million barrels per day the second lowest reading since January. Along with crude oil, the gasoline market is suspected to receive selling from the perceived slowing in the US economy, even if dovish central bank dialogue and consistent declines in the dollar provide some support.
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