Written Commentary
CRUDE OIL
While crude oil is showing initial strength this morning the overall global macroeconomic outlook is still suspicious with the meter tilting more toward recession than growth. However, the focus of the energy markets is locked onto Chinese factors which are supportive of prices to start the new trading week. Apparently, the Chinese National Petroleum Corp. over the weekend indicated it expects crude oil imports to the country to increase by 6.2% this year relative to last year’s 540-million-ton import tally. Furthermore, the national oil company expects crude oil refinery throughput to “increase” by 7.8% to 733 million tons. Comparing the anticipated import tally to the refinery throughput tally indicates China expects fuel demand to grow significantly. In a positive long-term development for crude oil (a negative for global fuel markets) the Saudi national oil company has indicated it will begin building a massive Chinese refinery in a project that was delayed by the Covid pandemic. According to some of the world’s largest oil traders the oil market is set to rally with prices near 15-month lows seen as “too cheap.” It should be noted that a Middle East oil tanker glut has narrowed slightly because of increased end of March demand. Even though the Russian energy minister indicated his country was near its production cut target output level of 9.5 million barrels per day, flows from the country suggest that production cuts are not having an impact yet on actual Russian exports. In fact, Russian exports from the Urals continue to remain steady and the trade is concerned about burgeoning US crude oil inventories on the Gulf Coast. Nonetheless, fear of major demand losses remains in place because of the US and European banking threat and that concern might not be alleviated quickly. However, Chinese, and Indian demand readings remain supportive elements with February Indian crude oil imports jumping 8% over year ago levels with the country attempting to meet strong fuel demand which has reached 20-year highs. In our opinion, the crude oil market is “mostly liquidated” and will recover sharply if the banking crisis is contained to current trouble spots.
NATURAL GAS
The most supportive argument for the bull camp in natural gas is the markets continued efforts to build consolidation support just above $2.24. Certainly, the bear camp has benefited from modest cold weather in Europe, but the track toward warmer temperatures from normal seasonal patterns reduces the supportive capacity of “normal cold”. Obviously, supply evidence from both sides of the Atlantic remains bearish with US inventories holding a massive surplus relative to 5-year average levels and the Russian national gas company continuing to send oil through pipelines under the Ukraine to Europe. While there is a minor outage in Norway, and more evidence on the undersea pipeline destruction could surprise the trade in some fashion, the bull camp lacks a case. Without the market’s capacity to respect consolidation support on the charts, the bull camp would have almost no ammunition.
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