Written Commentary
CRUDE OIL
Despite modest evidence of improvement in the Chinese economy from overnight scheduled data and signs that China is ramping up commodity output (a possible sign they are gearing up for economic recovery), crude oil prices have spiked down into new low territory this morning and are likely to fail at a key psychological price of $70.00. Certainly, news that Chinese January and February crude oil output gained 1.8% is bearish but that is heavily offset by an increase of 3.3% in Chinese refinery throughput. While the markets expected an increase in weekly API crude oil stocks yesterday, the stocks were much higher than expected. However, the API also showed a very significant drop off in key US product inventories and that could provide a slight threat to those attacking the crude oil market with sell orders this morning. On the other hand, the bearish tilt is fairly entrenched with the markets overnight discounting fresh evidence of very strong purchases of Russian oil by India. Even the Russian price cap is showing little evidence of achieving its goal of wounding Russia financially with estimates overnight indicating 75% of Russian oil sales have taken place outside limits. Apparently global energy demand concerns have remained in place despite a relatively benign US CPI result yesterday. However, the crude oil market could draft support from an upward revision in Chinese demand forecast figures from OPEC of 710,000 barrels per day. Going forward we see the supply-side of the equation adding to downside action with US production data indicating more supply is on the way and that is critical with US crude oil inventories already sitting 66 million barrels above year ago levels. After Tuesday’s close, the API survey showed that US crude oil stocks had a weekly increase of 1.16 million barrels which was a larger build than trade forecasts.
NATURAL GAS
Once again the US natural gas trade was lucky to avoid significant selling yesterday as prices in Europe fell sharply with mild temperatures seen on both sides of the Atlantic. Unfortunately for the bull camp, expectations for this week’s EIA gas storage withdrawal are very low for the middle of March, and therefore we expect the surplus inventory levels to 5-year average storage levels are likely to jump significantly in tomorrow’s EIA report. In fact, the weekly EIA natural gas storage report has only posted 3 triple digit draws this winter with the lower end of the range of estimates this week predicting a very small weekly withdrawal of 49 BCF. Fortunately for the bull camp, the natural gas market is already aggressively net spec and fund short which has probably kept sellers in smaller numbers this week. We give the edge with the bear camp as near-term supply availability remains significant, temperature forecasts are bearish on both sides of the Atlantic and the US trade is not expecting the return of the Freeport export facility to be a significant draw on US gas supplies anytime soon. However, the market might draft support from news overnight that Russian gas exports declined by 30.7% last year and the market might also garner support from Russian energy minister predictions that Russian gas production will fall again in 2023.
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