Written Commentary
CRUDE OIL
While crude oil prices continue to chop near the middle of the last two months trading range, the market appears to retain a bearish bias especially with the market unable to post gains off the aggressive escalation of US attacks on Yemeni rebels. In addition to fears of a building global oil supply surplus, the trade has recently seen extremely large product stock builds over the last three weeks which points to soft demand and should reduce refinery demand for crude soon. Adding into the bearish tone is an IEA forecast predicting the world oil market will remain “reasonably well supplied” this year especially with the oil agency predicting a deceleration of global energy demand growth. In the end, the IEA projected 2024 demand growth at only 1.2 million barrels per day versus the 2.3 million barrels per day growth last year. EIA also raised its 2024 global oil supply increase by 1.5 million barrels per day with non-OPEC supply expanding faster than demand expansion. On the other hand, reports that North Dakota oil production was reduced by 700,000 barrels per day because of extreme cold this week provides the market with a temporary backstop against sagging demand concerns.
NATURAL GAS
With some chatter in the petroleum markets suggesting extreme cold has produced increased consumption and today’s weekly inventory data expected to show a moderately large withdrawal, it is possible the $2.40 level will now be respected as key support. According to Bloomberg, natural gas traders in Europe have started to shift their attention to the summer cycle as indicated by August futures trading near winter contracts. Unfortunately for the bull camp, Asian LNG prices overnight reached seven-month lows perhaps because reports of record Chinese coal production and perhaps because of signs of expanding Asian price sensitivity, and therefore, the prevailing bias in gas remains down. In retrospect, the severe cold blasts in Europe and in the US should help partially clean up oversupply in the US which should increase the prospects the December low was a major price low. On the other hand, without a much larger than expected withdrawal today, the winter 2024 rally might have run its course.
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