Written Commentary
CRUDE OIL
The petroleum markets are clearly split with supply news in crude oil minimally supportive this week and supply news for the product markets extensively bearish. Clearly, the bear case has been and will continue to be solidified, but a dip in weekly EIA crude oil stocks yesterday and the biggest decline in Cushing Oklahoma inventories since September 8th certainly deserves some positive price action. In fact, the IEA and OPEC have both floated positive 2024 demand forecasts and those forecasts are given credence by signs of unending resiliency in the US jobs market. Unfortunately for the bull camp, Chinese energy demand news has been neutral to negative, and the trade has seen only supply delays from ME rerouting and has not yet encountered a sustainable physical reduction in production/transportation. However, US production losses from extreme cold temperatures are now ending and temperatures in the US are expected to be mild into the end of the month. Certainly, seeing US crude oil stocks decline more than expected helps the bull camp but that news probably inspired more short covering buying than fresh outright buying. On the other hand, crude oil inventories did decline by more than expected, and the year over year deficit expanded sharply on a week over week basis! Despite our views that a large portion of yesterday’s strong gains were simple short covering, US economic data continues to prop up US energy demand expectations and given strong US refiner demand, crude oil prices deserve to track toward the upper end of the $75.70 and $69.90 March crude oil contract trading range.
NATURAL GAS
With this week’s pattern of lower highs and lower lows, bearish US temperature forecasts, an undersized weekly withdrawal from EIA inventories and fresh problems at a primary US export facility, we see prices ending the week under distinct pressure. Fortunately for the bull camp, a portion of the disappointing weekly withdrawals from inventories was offset by a very minimal narrowing of the surplus to five-year average stock levels. The weekly natural gas storage report showed a draw of 154 bcf. Total storage stands at 3,182 bcf or 11.2% above the 5-year average. Over the last four weeks, natural gas storage has declined 395 bcf. In today’s action the bear camp is likely to attack again as disruptions of gas feed stock flow to the Freeport LNG export terminal will likely backup up on shore supplies in the US.
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