Written Commentary
CRUDE OIL
With another higher high for the move today the crude oil market continues to expect improving Chinese demand and has definitively rejected bearish supply readings from the API and EIA earlier in the week. In a potentially positive development for WTI traders are noting the sharply rising Saudi prices into Asia, which in turn could increase the attractiveness of US oil export supply. On the other hand, overnight Bloomberg reports indicate China’s Unipec has bought at least 15 cargoes of Middle East oil with another Chinese large refiner purchasing 2 million barrels for March loadings. Another positive demand item overnight came from Bloomberg Road traffic Index readings which posted significant increases in traffic congestion and vehicle registrations. From a shorter-term perspective, stronger Brent crude prompt spread pricing has shifted back into backwardation with the Brent trade apparently concerned about supply disruptions in the North Sea. This week’s US inventory data was patently bearish with crude oil stocks jumping by slightly more than expected and the year-over-year surplus jumping to a very significant 44.7 million barrels. A slight countervailing force to the jump in crude stocks is the noted jump in the US refinery operating rate of 2.2% as that should keep demand for US crude solid. In negative development Cushing, Oklahoma stocks have risen significantly over the 5-year average, and they have increased every week in 2023. Fortunately for the bull camp, the EIA recently confirmed record US crude export data, or the growing supply in Cushing would be even more bearish. The charts favor the bull camp and general upbeat economic psychology favors the bull camp, but we see critical support at $76.41 as very critical through US jobs data.
NATURAL GAS
With bearish weather returning to the US over the next 2 weeks, mild European temperatures expected to extend into next week, expectations of a normal withdraw from inventories later today and perhaps most importantly, a very damaging reversal on the charts yesterday, the prospect of new contract lows today is very high. In fact, US temperature forecasts out 15 days show temperatures usually 2 degrees to 5 degrees above normal which further reduces the chance of developing severe US winter tightness. As if the demand and supply negatives already known to the market are not enough to keep pressure on natural gas prices, US production continues to rise, US LNG exports continue to decline, and Asian LNG prices have declined to a lower range! The bear camp has regained control (they probably never surrendered it) and a very surprisingly large draw in today’s EIA inventory report, is unlikely to prevent lower lows.
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