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Crude Forges 4-Day High

CRUDE OIL

With December crude oil forging a 4-day high early today, the markets have embraced a bullish view following a much larger than anticipated decline in API crude oil stocks last night. Other supportive developments for crude oil early today are signs of weakness in the dollar, a 1.6% week over week decline in European crude oil in storage, and a jump in WTI bullish option trading volume. The bull camp might also be drafting lift from a forecast of $100 crude oil from upcoming disruptions of Russian flows involving price Cap reactions on Russia. Another less direct development for the bull camp came from a respected energy market analyst icon (Danial Yergin) who thinks Putin is poised to weaponize oil. A bearish impact on crude prices going forward is a Reuters poll suggesting Russia will be able to “reroute” from west to east if the EU price cap is put in place. However, the kickoff date for the Russian price cap is December 5th which likely means the subject will remain a back burner issue for now. While the market’s capacity to reject the $85.00 level recently was partially the result of the start of the latest OPEC+ supply cutback, the strength in crude oil prices yesterday might have been the result of rumors that China was planning to exit its zero Covid policies. In a longer-term supportive development, the OPEC Secretary General yesterday in a speech predicted that significant shortages and price shocks will continue in the future without very significant investment in the oil sector. Unfortunately for the bull camp the Saudi state oil company Aramco posted record income and cash flows yesterday, and that should set the stage for solid production in the coming months.

NATURAL GAS

Given the key reversal from the Monday high, reports that Germany conservation efforts have reduced their consumption by 20% and recent news that Freeport has not received necessary permits to ramp up exports, leaves the path of least resistance in US natural gas pointing down. Adding into the bearish track an extending pattern of steady Russian gas flows through Ukraine and ongoing warm November temperatures in Europe. In fact, in addition to successful reduction in winter European consumption, seeing warm temperatures linger in Europe could foster talk of some European storage facilities reaching near capacity supplies. This week’s Reuters poll projects EIA working gas in storage to post an injection between 81 and 109 BCF. However, the real measure of the impact of this week’s storage reading will likely be the status of current supplies relative to 5-year average levels. We see initial and unreliable support in December natural gas today at $5.54 with bottom of the consolidation support zone at $5.39 a likely target later this week.

 

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