Written Commentary
CRUDE OIL
We think the crude oil market is encountering year end profit-taking, concern of slumping Chinese energy demand from the Covid flare and from news that Japan has booked a crude oil shipment from the Russian Federation. Supporting prices this morning is a decline in API crude oil inventories from yesterday, (however the decline was smaller than anticipated) and from news that Russian Urals exports have dropped significantly to Europe possibly from the December 5th Price cap which coincided with the implementation of other sanctions. However, Macquarie has indicated that the EIA is underestimating US oil production which they think will reach new record levels next year. Their estimates indicate that daily US crude production will reach 13.6 million barrels before the end of 2023 which is a 1 million barrel per day increase from current levels.
While the gasoline market fell sharply during the Wednesday trade and at times was $0.12 below the Tuesday high, the market rejected the $2.3030 level again overnight as that level might be considered a value zone. Despite the winter storm, traders are hopeful that US implied gasoline demand will put back-to-back weekly demand gains in place for the first time since the middle of September today. This week’s Reuters poll calls for gasoline stocks to drop by 500,000 barrels but the refinery issues could provide a surprise bigger than expected decline.
NATURAL GAS
While the natural gas market yesterday discounted evidence that Russian pipeline gas exports in 2022 were the lowest since the Soviet era, Russian pipeline exports to Europe declined by more than 45%. With the markets discounting bullish developments news that Russian gas production declined by 13.3% this year is lost in the bearish sentiment fog. However, a 14% jump in LNG daily storage at US export terminals and milder US and European temperatures will probably limit the initial short covering effort this morning. Obviously, the natural gas market is undermined by the news that the Freeport US export facility will not likely resume operations until the end of January.
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