Written Commentary
CRUDE OIL
With a new high for the move and the highest trade since mid-October the bull camp in crude oil starts the week with the edge. The bull camp is cheered by a favorable Chinese manufacturing PMI reading overnight, a 19% week over week drop in global floating crude supply, and by chatter that Saudi Arabia will raise prices to Asian customers because of solid demand signals! However, Bloomberg this morning has coverage indicating that US suppliers are beginning to gain market share from OPEC plus members which from a longer-term perspective erodes the power of Middle East producers. In a slight WTI positive, India has apparently halted crude purchases from Venezuela because the upcoming expiration of a waiver of US sanctions. Another lift for crude prices is the realization that US refiners are taking in significant crude supplies from Venezuela clearly indicating refiners in the US are ramping up their activity in anticipation of stronger seasonal and macroeconomic demand. While US production remains strong and periodically posts record output, US crude oil output in January declined by 6% from severe cold thereby reducing the buildup of domestic crude oil supply in the typical refinery maintenance period. Another supportive overnight development came from the Russian oil minister who indicated his country will cut output this quarter to catch up with other OPEC plus output restraint compliance.
PRODUCT MARKET FUNDAMENTALS
Clearly, the gasoline market is in less favor than crude oil in the early action today and we suspect that is largely the result of the massive jump in the US refinery operating rate over the past two months, which is likely to result in a near-term buildup in gasoline inventories. Unfortunately for the bull camp, the net spec and fund long position in gasoline is severely overbought especially with the high this morning showing prices four cents above the level where the COT report was measured. In our opinion, the net spec and fund long adjusted to the high this morning is likely the longest positioning since January 2021. With the Russian oil minister indicating there was no need for a Russian diesel export ban, another bullish force has been removed from the diesel trade.
NATURAL GAS
With natural gas managing to consolidate and then bounce from the latest contract low at the end of last week, the short-term oversold condition is partially leveled which could allow for renewed selling and further contract lows this week. In a longer-term/big picture negative, the Russian national gas company has resumed gas pipeline shipments to China and Russian gas shipments to Europe remain steady. From this point forward, reports of below normal US temperatures will have very little supportive capacity for gas prices as we expect weekly inventory reports will return to an entrenched pattern of injections.
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