Written Commentary
CRUDE OIL
The oil market enters the US trading hours under modest pressure, with some profit-taking after last week’s 5.8% gain. Trade is rather quiet with much of Asia on holiday and China closed for the week in observance of the Lunar New Year. Negative headwinds for oil include downside risk to the Chinese demand situation and chatter that the Israel-Hamas conflict could be moving toward a diplomatic solution. There are also reports that the oil-rich Permian Basin could see another year of record oil production. World oil production comes into focus ahead of Tomorrow’s OPEC meeting and the IEA monthly update on Thursday. In the meantime, positive forces underpinning the oil market include recent gains in world equity markets, with European shares at a new two-year high and the S&P 500 into fresh record highs. Ongoing Israeli strikes in the southern border town of Rafah continued over the weekend, which keeps the market focused on Middle East headline flow. A tight US supply and demand backdrop for the product markets is also supportive.
NATURAL GAS
March Natural gas prices saw a gap lower open Sunday evening that led to another lower low. The market ended last week’s trade with a five-day losing streak and down 11%. There were reports over the weekend calling for the Biden administration to overturn the recent pause in LNG exports, but that’s done little to support the market this morning. The negative headwinds continue to be near record US production and warmer than normal US weather forecasts this winter. Utilities have used less natural gas this year as heating demand ebbed. US natural gas storage is about 15% above normal for this time of year. Last week’s slide in natural gas prices and subsequent rally in WTI crude oil drove the US oil to gas ratio into the highest level since 2012. This is likely to remain a negative headwind for natural gas prices, with more oil drilling activity pulling up more residual adding to natural gas supplies.
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