Written Commentary
CRUDE OIL
While crude oil is trading higher this morning, the propensity to coil within the range currently dominates. However, the markets are likely benefiting from strong global equity market action overnight and from a reduction in Norway 2023 and 2024 crude oil output forecasts. In a potential bearish shift, reports overnight indicate that Chinese refiners are turning away from Saudi supply and with softer demand in the face of an aggressive Saudi Arabia price cut could mean the Chinese do not need supply because of lingering economic troubles. It seems the trade is not overly concerned about supply disruptions, given the failure to rally aggressively this week, in the face of the most middle east ship attacks since the beginning of the turmoil, and with prices failing to react to armed guards boarding an oil tanker off the coast of Oman. However, the cost of shipping oil from the Middle East has reached the highest level in three months in a sign of escalating concern of disruptions there and from longer delivery times. Unfortunately for the bull camp put option interest this week has escalated, Barclays has reduced their 2024 oil forecast by eight dollars, and a downside breakout in US initial claims today could prompt a major risk-off event. However, with the energy markets managing to coil within trading ranges in the face of recent bearish supply and demand news, the potential for solid value at the $70.00 level improves. Therefore, the bear camp retains an edge with respect to fundamental headline developments, especially with the EIA predicting OPEC+ production will rise by 600,000 barrels per day this year as production restraint agreements phase out.
NATURAL GAS
In retrospect, it appears that natural gas has “blown off” and is now poised for corrective action. However, extreme cold in the US in the coming weekend and signs that Asian LNG buyers have stepped forward following a recent setback in regional prices temper losses today. On the other hand, if today’s EIA natural gas working gas in storage report posts a smaller than anticipated withdrawal that is likely to accelerate this week’s slide. The latest Reuters poll projects EIA gas stocks to decline this week by 104 BCF/119 BCF with the markets likely to pay particular attention to the change in the surplus inventory level to five-year average readings. Unfortunately, Bloomberg overnight has indicated that Europe has ample supplies despite recent cold temperatures and that justifies the overnight slide below yesterday’s low. Despite very cold temperatures looming, we remain very skeptical of the bull case.
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