Written Commentary
CRUDE OIL
It was inevitable that prices would correct aggressively given the breakneck pace of gains over the prior 3 weeks. Talk that US and Iranian nuclear talks are about to conclude (with a possible deal) could result in Iran “initially” putting 1 million barrels per day of oil on the world market. Seeing Iran quickly add 1 million barrels per day to the world supply flow, combined with increased US output could end the period of “demand outstripping supply”. While not a direct and significant impact, seeing US treasury yields breakout to the upside earlier this week might be prompting crude long hedgers to exit ahead of the US CPI report on Thursday.
While the gasoline market has avoided a lower low for the move early today and has found a measure of resistance at $2.60, the bull camp probably needs an unexpected decline in EIA gasoline stocks to stand up against the “liquidation tide” in the energy complex. Like the crude oil market, fundamental news flow has clearly shifted in favor of the bear camp. An increase
in crack margins could boost refining activity in the weeks ahead, especially if crude oil prices fall faster than product prices and that could build supply.
NATURAL GAS
Yesterday the natural gas market forged an inside day range and held near two-week lows but prices this morning remain precariously perched above this week’s lows, as if a downside extension is in the offing. Obviously, mild temperatures in the eastern US and Europe, word that French/Russian talks provide a basis for a Ukraine solution and spillover weakness from petroleum leaves the bear camp with an edge. On the other hand, in a strange twist of fundamentals traders are viewing “winter heat” in the Western US as supportive.
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