Written Commentary
CRUDE OIL
Stepping back from the day-to-day action to consider intermediate fundamental conditions is a good idea today as the crude oil market this week was unable to embrace a definitive view and year end position squaring and/or extremely thin conditions are likely to extend choppy price action today. Clearly, the biggest negative facing crude oil prices into 2023 is the growing potential for a sudden reduction in Chinese demand as their battle against Covid infections could get out of control and could also spark fresh breakouts throughout the world. From the supply side of the equation, evidence shows Russia continues to provide significant crude supply to the world, with Russian exports becoming the largest source of supply for China and India.
Countervailing the large decline in US gasoline inventories was an increase in weekly ARA gasoline stocks and a 13-month high in European gas oil stocks. Overnight the markets saw evidence that US gasoline imports from Europe in the first 7 days of December fell to the lowest levels since January.
NATURAL GAS
Taking a step back to consider the overall fundamental condition in natural gas is timely as today’s trade is expected to be extremely thin and might see significant position balancing by shorts with significant profits from positions implemented over the last 2 months. The market is also facing bearish big picture news from Russia as they indicated they have become China’s leading oil and gas supplier. Therefore, the fear of global supply tightness and a European winter crisis from extreme cold have not cushion prices as would be expected in the beginning of the winter.
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