Written Commentary
CRUDE OIL
Despite a three day high early today, the prevailing trend in the oil market remains down with demand suspicions and a lack of respect for OPEC+ cuts leaving the bear camp confident. In fact, overnight global floating oil storage increased by 11% over last week, with Bloomberg coverage overnight suggesting US production expansion next year will offset most, if not all, production restraint efforts by OPEC+. Granted, there is some energy demand hope flowing from residual strength in global equities and from psychological support from news that the US will continue to rebuild its strategic supply, but that support has its limits. While the crude oil market managed to reject and bounce from last week’s spike low, the recovery was forged on low volume and a decline in open interest, suggesting the trade was not wholeheartedly behind the bounce. Unfortunately for the bull camp, the trade has lost its respect for OPEC+ to manage market pricing. The recent positioning report showed the crude oil market vulnerable to more stop loss selling. It should be noted that hedge funds have increased bearish positions over last week, the outlook for the US economy has deteriorated, the dollar is showing strength and US crude oil inventories currently stand at a year-over-year surplus of 31 million barrels. Furthermore, after extreme tightness several weeks ago in Cushing, Oklahoma, inventories have rebuilt perhaps because of US attempts to rebuild the SPR. In conclusion, without an unforeseen threat against supply, sagging demand should leave the bear camp in control.
Oil pump jacks at sunset sky background. Toned.
NATURAL GAS
Like the petroleum markets, the best chance of a bottom in natural gas is a complete exhaustion of speculative selling. However, with the most recent COT positioning report showing a net spec and fund short 57,000 contracts smaller than the largest net spec and fund short of 2023, the market probably retains selling fuel. While temperatures in the northern hemisphere are dropping, below average temperatures have been nearly absent so far. Since it is widely known throughout the markets that strategic supply throughout the northern hemisphere is at capacity, normal cold will not produce rallies. It is also widely known that US production will likely register new record readings which added to a surplus to the five-year average EIA storage levels of 6.7% gives the bear camp confidence to continue to press the market lower.
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