Written Commentary
CRUDE OIL
After an upbeat finish to last week, the petroleum complex took a decidedly negative shift on Monday. Unless the market can receive positive news from the demand outlook, crude oil and the products could remain on the defensive this week. January crude oil gave up initial strength on Monday and went on to post a heavy loss, and it was lower again overnight. News that China’s Covid cases spiked over the weekend was one source of pressure. OPEC reduced their 2022 and 2023 oil demand growth forecasts by 100,000 barrels per day from their October estimates, which was their fifth demand growth reduction so far this year. Iraq’s Prime Minister said that his nation needs to expand its oil production to generate more revenue and rebuild their country. He also said that OPEC Plus needs to reconsider Iraq’s current production quota. The EIA said that Permian Basis oil production should reach a record in December, but they also stated that production has grown very slowly. The IEA said that the EU ban on Russian seaborne oil exports and the G7’s price cap on Russian oil sales will create unprecedented uncertainty for the oil markets. There are reports that Chinese refineries have started to pull back on Russian crude oil purchases, but their refinery throughput last month came in 0.8% above last year’s levels. The Reuters survey for this week’s EIA report is calling for a decline of 300,000 barrels in US crude oil stocks in this week’s EIA report. Last week’s number was the second highest since July 2021, and even with a decline of 300,000 barrels this week, they would still be the second-highest.
NATURAL GAS
Natural gas prices have seen whipsaw action over the past four sessions, but they have put together a pattern of “higher lows.” Colder weather and expectations for a sharp increase in demand this week across much of the US have underpinned prices. The latest 8-14-day forecast below normal temperatures confined to east of the Mississippi River, but late-November is a period of increasing heating demand. European temperatures are forecast to be milder than normal next month, but that has not put any significant pressure on US prices. There are rumors that the Freeport LNG export terminal will postpone its partial restart until early 2023, which would mean that domestic supply would stay elevated. The coiling action on the charts has an upward bias, and it may be setting the stage for a breakout rally. As we are well into the North American heating season, prices should remain well supported on pullbacks.
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