Written Commentary
CRUDE OIL
Despite the definitive failure yesterday morning, crude oil prices have reversed and appear to be capable of retesting this week’s highs. While some traders are bullish because of potential supply disruptions from terrorist attacks in the Red Sea, others are likely upbeat because of precipitous declines in the US dollar. While the trade earlier this week was beginning to embrace talk of a winding down of Israeli offensive action, overnight headlines indicate that Israel has widened its assault as if rushing to finish the job before a UN security council aid vote offers hope to Hamas fighters. Given the initial strength today, traders were likely inspired by a 3.6% increase in Chinese apparent demand in November of 14.32 million barrels per day, but that bullish news is heavily countervailed by the fact that Chinese November imports were at seven-month lows. In other minimally supportive outside market news, weekly ARA product inventories saw declines in gasoline, naphtha, jet fuel and gas oil inventories this week. If optimism over the potential for improved physical energy demand from a very upbeat macroeconomic environment is unable to support prices, supply concerns should help support but not drive prices sharply higher.
NATURAL GASDespite a slightly above-expected weekly draw in natural gas working gas in storage yesterday and a slightly more supportive temperature forecast, the gas market posted only modest gains yesterday. On the other hand, gas futures prices this morning sit near 10-day highs and some shorts might be inspired to bank long-held short positions in the face of colder temperatures and the larger than expected storage withdrawal yesterday. We also suspect that the cooling trend from a classic seasonal perspective will turn up the pressure on shorts to bank profits and move to the sidelines. Furthermore, the February contract has impressively tested 10-day highs following news earlier this week that underground storage levels in Europe over the last month have declined by 11% from capacity levels in November and that is a shift in the bearish supply side narrative. It should also be noted that gas prices have firmed in the second half of this week despite evidence of a significant jump in wind power generation in Europe.
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