Written Commentary
CRUDE OIL
We are surprised that February crude oil managed to post a higher high overnight as several negative demand headlines have surfaced today. However, the current COT net spec and fund short position has likely reached the lowest level since November 2016. In addition to reportedly leaked Chinese government documents indicating that China had 250 million infections in December, the IMF has predicted recession in 2023. Furthermore, a Reuters poll on Friday predicted that energy prices would slump in 2023 because of slowing in the global economy and the Chinese Covid threat. In yet another negative development Bloomberg yesterday reported an 11% week over week increase in global crude oil in floating storage. On the other hand, Bloomberg yesterday noted that hedge funds increased their bullish positions in Brent crude oil to a 6-week high and boosted their bullish WTI positions to a 7-week high. While not a significant development, the US weekly crude oil rigs operating declined by one and stands at 621. We give the bear camp the edge to start 2023.
NATURAL GAS
With mild temperatures extending and bearish macroeconomic forecasts throughout the headlines this morning the downside extension in natural gas prices is justified. However, with the nearby natural gas contract sitting $1.05 below the level where the COT report was measured, the natural gas market has probably registered the largest short since March 2020. Other negatives for natural gas include news that the Russian national gas company has increased pipeline flows to China with reports that flows are several days ahead of schedule. Even hedge funds have turned more bearish toward natural gas with their net spec positioning reaching a 3-week low. In yet another negative overnight development Bloomberg saw a forecast overnight that Asian gas prices would fall toward the mid-$20 levels/mmbtu due to warm weather and that follows a $23.75 bid by Shell overnight.
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