Written Commentary
NATURAL GAS
It goes without saying that bearish fundamentals continue to dominate in the natural gas market with the trade rushing to factor in a full winter of mild temperatures and any other negative they can dream up. However even with a significant cold front in both the US and Europe, it could be difficult to pull in fresh speculative buyers because of fear of more major price declines. Even long-term developments favor the bear camp with congressional proposals to ban gas stoves in the US. Yet another bearish development in yesterday’s trade that will likely continue to reverberate today is another noted jump in US EIA inventory surplus readings to 5-year average inventory readings. Furthermore, the EIA withdrawal was slightly below normal for this time of year. The best odds of predicting the correct direction of natural gas prices require sticking with the dominating bear camp.
CRUDE OIL
While March crude oil has established a thin layer of chart support at the $75.00 level, global energy demand expectations will be given extremely important guidance from today’s US data. Overnight headline flow was positive with Spain December crude oil imports up 13.2% versus year ago levels and news that Chinese oil refiners are boosting refinery throughput aggressive because of the beginning of the European Russian oil products embargo. Negative overnight developments include record January Russian ESPO loadings and official indications that Russia does not plan to cut back on oil production and product exports. With the crude oil market touched and aggressively rejected the $75.00 level yesterday and has respected that the $75.00 level again today that level is a very important psychological and technical support level today. Other positives from yesterday were Bloomberg statistics indicating traffic in China jumped by 200% as of February 1st. Some traders think that significant gains in equities are beginning to pull speculative money from crude oil. While the ultimate impact on global product supply from the official implementation of the EU ban on Russian fuel exports is impossible to predict, global refiners with the ability to expand operations are doing so and that should increase demand for prompt and dated crude supplies and possibly undermined product prices further. The most likely expansion of refinery output is in the Middle East and China, with the US refiners less reactionary. Therefore, it is possible that Middle East oil flows will slow as they ramp up output to meet possible expanding domestic refinery demand and we expect US crude exports to rise because of non-Russian product headwinds.
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