Written Commentary
NATURAL GAS
Just when it appeared that the natural gas market was extremely sold out and may have found some form of value, the market plunged sharply again and likely forced recent bottom pickers to utilize stop loss selling orders. Under the current condition, the market completely discounts news that November Chinese gas imports were near two-year highs in November which was the highest since January 2022. Not surprisingly, oversupply remains a dominating bearish force with only two withdrawals from EIA working gas in storage in a young heating season. In yesterday’s action, there were reports that the sharp declines in the petroleum markets spilled over into the natural gas trade with the fear of slumping demand for petroleum sparking fear for demand for natural gas. US gas storage today is expected to stay well above the 5-year average even if there is a “triple-digit” decline which is widely expected in this week’s EIA report.
CRUDE OIL
While the crude oil market did not post a lower low in the overnight action, the trend is down, and the market saw a fresh definitive bearish fundamental demand development overnight leaving the bear camp confident to start today. Chinese November crude oil imports dropped 13.3% from the prior month and posted the first year over year decline since April, while the increase in January through November cumulative crude oil imports relative to year ago levels is mostly discounted. Fortunately for the bull camp in crude oil, both implied gasoline and distillate demand this week improved slightly. Going forward it is difficult to dispel the deteriorating energy demand outlook with the trade shaping the Chinese crude oil import report this morning into a slight disappointment and because Indian November oil demand overnight was found to have dropped by 2% versus last year. About the most positive issue for crude is the likely sharp decline in the net spec and fund long positioning in crude oil which last week was 169,000 contracts lower than in the October 8th report. The weekly EIA report showed a surprisingly large weekly decline in US crude oil stocks, but that was offset by surprisingly large builds in US gasoline stocks and US distillate stocks. US crude oil production had its first weekly downtick since July, US refinery utilization climbed back above 90% for the first time since September and implied gasoline and distillate implied demand had sizable weekly increases. However, US crude oil imports had their second largest weekly reading since 2019 while crude oil stocks at the Cushing, Oklahoma hub had a sixth weekly increase in a row and climbed to their highest level since August.
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