Written Commentary
CRUDE OIL
While the very upbeat macroeconomic buzz remains in place it has moderated thereby dampening speculative long interest in crude oil. In fact, given a much larger than expected decline in weekly EIA crude oil inventories yesterday the very poor close (the lowest since December 15th) should be very discouraging for the bull camp. In fact, the decline of 7.1 million barrels from EIA crude inventories was the largest weekly drawdown since August but that bullish influence was moderated by an increase in Cushing Oklahoma supplies. Another measure of bearish sentiment in the marketplace is the lack of speculative buying in the wake of headlines that Israel might open a second front in southern Gaza. Yet another bullish development discounted by the market over the past 24 hours is news that US Midwest refinery activity last week reached 101.7% of capacity as that should keep the “call” on US crude supply strong.
PRODUCT MARKETS
While the gasoline market has found a measure of support at $2.10 short-term technical indicators are in sell mode with the highest US Midwest refinery operating rate since 2017 adding a measure of fundamental bearishness. However, US implied gasoline demand at 9.168 million barrels per day reached the highest reading since late October and was the second highest weekly demand reading since the end of August! It should also be noted that the four-week moving average of implied US gasoline demand forged an upside breakout leaving the gasoline market with the strongest demand signals of the petroleum markets. Implied gasoline demand had a sharp weekly increase and climbed back above the 9 million bpd level for the first time since early November, while implied distillate demand reached a 5-week high. US petroleum product exports came to 7.211 million bpd which was a record high and only the third time on record that they have been above 7 million bpd.
NATURAL GAS
Natural gas prices have lifted clear of their early December lows and may finish the month and year by breaking out of their recent consolidation zone. February natural gas was able to rebound from early pressure and finish Thursday’s outside-day session with a moderate gain. The market found support from updated forecasts calling for a cooler shift in temperatures which should result in a significant increase in residential and power plant demand. From a longer-term perspective Gas should benefit from forecasts that Chinese LNG demand in 2024 will increase by 6% to 8%. The weekly natural gas storage report showed a draw of 87 bcf, which was a larger decline than trade forecasts and provided support to the market.
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