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Bullish Supply News

CRUDE OIL

Favorable chart action, a retraction of a US SPR sale offer, and ongoing belief OPEC+ output cuts will tighten global supply, leaves the bull camp in charge into the last trading session of the week. However, overnight reports of significant softening of Chinese traffic patterns during the holiday and White House promises of an aggressive response to the OPEC+ move to reduce supply should provide headwinds. Despite disappointing US economic data, adverse dollar action and weakness in oil patch shares yesterday, petroleum markets continue to extend this week’s rallies with higher highs. However, soft jobs related data could rekindle favorable energy demand expectations if weakness in the primary monthly jobs report adds to hope that the Fed is near the end of aggressive hikes. Even though the markets didn’t exhibit significant volatility in the wake of the Russian Energy Minister’s prediction that Russia would cut oil output by 3 million barrels per day if price caps were implemented, that fundamental prospect should leave a strong bullish theme hanging in the wings. A very minor supportive technical signal is the slight uptick in trading activity this week during the rally. Therefore, crude oil retains enough potential speculative buying fuel to lift December crude oil above 90.00.

oil rig at sunset

NATURAL GAS

With the December natural gas contract from the last COT positioning report falling $0.46 into this week’s low, we put the natural gas market at the most aggressive short spec level (meaning extreme bearish sentiment) since the early days of the pandemic. However, the weekly EIA natural gas storage report showed a large net injection of 129 bcf and while that is not surprising during the soft demand season, a significant narrowing of the deficit versus the 5-year average in the US is clearly resulting in a buildup of supply. Over the last four weeks, natural gas storage has increased 412 bcf. With European government forces pushing forward on regulations to reduce consumption in the coming winter, natural gas demand views should be pulled downward. We see resistance in December natural gas thickening at $7.24 and the potential for periodic chops down to the bottom of the current consolidation zone at $6.56 are likely.

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