Written Commentary
CRUDE OIL
The bear camp has control of crude oil from both fundamental and technical perspectives this morning. Obviously, big picture macroeconomic uncertainty is undermining demand hopes outside of China, the dollar continues to show strength and traders should be fearful of a jump in crude oil inventories from API today and the EIA tomorrow. This week’s inventory reports were delayed due to the US holiday on Monday. While a recent production cut announcement from the Russian oil minister should help support prices, the failure to hold above $75.00 on a close basis today could open the prospect of a continuation to $72.50 in the April contract. In retrospect, Chinese energy demand hopes were given fresh support yesterday by evidence of further significant traffic “clogging” Chinese roads. However, the inability to range sharply higher yesterday in the US session in the face of a prediction of an 800,000 barrel per day increase in Chinese apparent oil demand this year, hints at a weakened bull camp. This week’s Reuters poll projects EIA crude oil stocks to increase by 1.2 million barrels, but many in the trade fear a much larger than expected inflow to inventory after last week’s massive 16-million-barrel inflow. Even more bearish is the fact that the year over year surplus in EIA crude oil stocks is approaching 60 million barrels. While the markets were not overly reactionary to news from earlier in the week of possible Chinese military support of Russia in the Ukraine war, that situation if proven true could result in renewed war premium pricing. In the near term, the bear camp holds an edge from demand fears beyond China.
NATURAL GAS
The punishment in natural gas prices continues with the trade seemingly on track to press April gas significantly below $2.00 for the first time since September 2020. In addition to very bearish US temperatures the gas market is pressed lower by news of a very successful effort to reduce European consumption. Apparently, EU gas demand (27 nations) declined 19.3% from last August into January. In fact, the US temperature forecast remains above normal into the first week of March indicating poor US demand should continue. However, it is possible natural gas could receive minimal support from a major winter storm crossing the US through the end of this week. Clearly, the natural gas market is unfazed by the increase in US LNG exports following the reopening of the Freeport LNG export terminal. On the other hand, the company is not expected to return to full output until April. The path of least resistance remains down with fundamentals seemingly becoming even more bearish.
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