Written Commentary
NATURAL GAS
Forecasts continuing to call for warmer than normal temperatures pushed March natural gas below the psychological $2.00 level yesterday. The softer demand situation is confirmed by recent data from the Edison Electric Institute that showed US electricity output was down 8% versus year-ago for the week ending February 3rd. Record US natural gas output, storage levels nearly 10% above seasonal norm, and a pullback in demand keep the price decline in play. While US weather forecasts call for warmer than normal temperatures into next week, longer term forecasts indicate a return to seasonal norms into the February 20 time frame. Expectations for today’s EIA storage report are for a draw of around 75 bcf, which is quite a bit smaller than the average draw for this time of year of 190 bcf. Also of interest in today’s session is headline flow surrounding US House committee questioning why the Biden administration paused LNG export approvals.
CRUDE OIL
Modest overnight gains in global shares, ongoing Middle East tensions and supportive EIA product inventory data yesterday is providing early support. The overnight macro tone seems to have been tamped down following Chinese inflation readings, with the latest CPI data showing the slowest annualized rate since 2009. Additionally, reports of a nearly 25% week-on-week decline in Chinese traffic levels ahead of the Lunar New Year are a concern. But that might be partially offset by prospects of a near term boost in Lunar New Year travel plans. The latest round of Fed member speeches conveyed less urgency to cut interest rates, which seemed to favor the soft-landing. Middle East geopolitical risks remain intact, with headlines that Israeli Prime Minister Netanyahu rejected the latest Hamas ceasefire proposal in favor of winning the war. Ongoing Houthi rebel attacks in the Red Sea continue to disrupt traffic through the Suez Canal. While yesterday’s EIA inventory data presented a larger than expected build in US crude oil supplies, the bulls turned their focus toward supportive product inventory draws and rising demand. EIA crude stocks rose 5.520 million barrels, which was quite a bit larger than the 1.9 million barrels expected.
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