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Bearish Outlook for Natural Gas Prices

NATURAL GAS

The outlook for natural gas prices has shifted bearish with technical action shifting negative on the charts, Russia indicating they are open to talks with the US on “strategic stability”, reports that China is preparing to sign an intergovernmental gas supply agreement with Russia and a restart delay of the Freeport export facility reducing US gas export hopes. However, the delay in restarting the lost Freeport export capacity from the fire is certainly supportive of “global gas prices”. In retrospect, seeing this week’s EIA natural gas storage report injection at only 64 BCF could be the last “injection” of the year. The weekly natural gas storage report showed an injection of 64 bcf, which was close to the middle of the range of trade forecasts. Total storage stands at 3,644 bcf, or just 0.2% below the 5-year average. Over the last four weeks, natural gas storage has increased 302 bcf. Part of that buildup is due to the Freeport LNG export terminal remaining offline with few signs that it will resume partial operations this year. Furthermore, US gas production has climbed back above the 100 bcf per day level creating negative supply and demand forces in the US.

gas stove w pot

CRUDE OIL

While the crude oil market has not forged a lower low in the early action today, falling US crude oil stocks from the EIA report should offer limited cushion for prices ahead. In fact, reports overnight indicate Chinese diesel exports were nearly twice quota levels in October but were less than export tallies in September. In short, fears of extreme global diesel supply tightness (the main bullish fundamental theme in the petroleum complex) is expected to be moderated by Chinese fuel supply flow ahead. Another bearish development came from a forecast for Russian November oil production to increase by 1% and from reports that Russia is finding tanker space from “near obsolete oil tankers” to push out as much supply as possible before the December 5th oil price Cap. Evidence of that increased flow from Russia has reportedly pressured physical prices and could accentuate selling from swelling demand destruction projections. However, the US is expected to release fresh guidance on the oil price cap and that could elicit some form of heated reaction from the Russian leader which in turn could dissuade sellers. Although there has been a mild positive shift in global risk sentiment this morning, Thursday’s mixed set of US economic data may have reinforced the market’s concern over the global energy demand outlook. In contrast, India’s crude oil imports last month reached their highest levels since July. US crude oil production has held between 11.9 and 12.1 million barrels per day since mid-April while over that same timeframe, the Baker Hughes US oil rig count has risen from 548 up to 622 rigs. Any increase with today’s reading would put the Baker Hughes US oil rig count at its highest level since the end of March 2020.

 

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