Written Commentary
CRUDE OIL
The path of least resistance is down in crude oil today with fresh chart damage, Saudi Arabia and Iran cutting prices to Asia, Chinese energy demand concerns on the rise following five-year lows in Chinese equities and Chinese December oil production increasing by 4.6% all of which put a conclusively bearish bias in place. Certainly, the threat of a sudden reduction in global supply remains in place especially with global press coverage attempting to link the increased attacks in the Red Sea to Iran. On the other hand, the market should draft temporary support from evidence of lost US production from extreme cold which resulted in power outages in oilfields and equipment breakdowns. Fresh overnight negatives include a week over week 1.6% jump in ARA crude oil storage, an upside breakout in the US dollar and a very definitive global risk off environment flowing from declining equity markets. Unfortunately for the bull camp, the threat of a supply disruption in the Red Sea is countervailed by reports of greater Caspian shipments from CPC, and from ongoing expectations of record US production in upcoming readings. On the other hand, extreme cold weather in the US is likely to result in production outages and a reduction of well efficiency.
NATURAL GAS
The bull camp in natural gas must be thoroughly devastated given the sharp decline in prices in the face of the coldest US winter blast in many years, especially with the US cold preceded by extreme cold in northern Europe. However, the trade today has embraced forecasts of a warmer finish to the month of January and the market this morning was also presented with a very bearish 2024 gas price forecast. In fact, with US temperatures well below zero and extreme wind chill readings closing schools and businesses, gas prices have declined $0.25 in a fashion that shows firm bearish control. Clearly, the trade does not think the cold snap will permanently alter what continues to be an oversupplied market. On the other hand, traders could be presented with evidence of large inventory draws from Europe which would suddenly change the complexion of the gas market in favor of the bull camp.
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