Written Commentary
CRUDE OIL
The charts in crude oil favor the bear camp today with the outlook for demand also favoring the bear camp despite the presence of early risk on sentiment flowing from equities. In a negative supply development crude oil in floating storage increased by 4.7% on a week over week basis and that news is amplified by last week’s large jump in EIA crude oil inventories of nearly 10 million barrels. Like most other physical commodity markets, the energy complex is likely to remain under pressure from big picture outside market forces. The prospect of more jumbo US rate hikes has rekindled strength in the dollar and eroded confidence in the world economy which in turn has rekindled demand destruction fear in energies. In a surprising development at the end of last week, the Russian president indicated that there were no plans for additional national force building efforts which could be seen as a de-escalation of sorts. In this week’s positioning reports money managers have increased their bullish positioning to a 16-week high in Brent crude oil which could facilitate stop loss selling in that contract ahead. Last week, the US oil rig count jumped by 8 to 610 rigs in what should be seen as a glaring bearish supply signal. With reports of product shipment diversions from ship monitoring services the focus of the petroleum markets is shifting toward the products and away from crude oil.
NATURAL GAS
With European leaders and energy consulting services suggesting European gas in storage is nearing capacity targeting for the winter, US storage levels jumping by triple digits for four straight weeks and no threatening tropical wave activity, the bear camp should have control to start the new trading week. While the weekly rig operating count declined by one, the focus of the gas market will likely be shorter-term and locked onto demand prospects. However, the Russian national gas company (Gazprom) has reiterated that a gas price cap would lead to a supply “halt” and that is a serious threat. Another element favoring the bear camp besides the big picture macroeconomic slowing expectations is aggressive European efforts to reduce consumption! While the return of a damaged/shut down US export facility will provide support the deficit to 5-year average storage levels in the US has narrowed to 6.4% with several weeks left in the injection season! Fortunately for the bull camp, the natural gas market could become excessively oversold quickly with the most recent positioning report showing the specs net short 130,000 contracts which is the most bearish positioning since the early days of the pandemic.
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