Energy Demand Threats Rekindled
What a difference 12 hours makes as the energy complex Thursday was extending this week’s recovery off hope for improving global energy demand and this morning sentiment has reversed completely in favor of the bear camp. Obviously, sharp declines in major European bank giant shares have fostered fear of bank sector problems spreading outside of the US and that combined with the US rate hike should rekindle energy demand threats. However, press reports overnight suggest significant bargain-hunting buying attempts in the face of overnight declines have been seen which could help crude oil respect the $65.00 level in the coming sessions. Unfortunately for the bull camp, the shorts have been given fresh confidence and the tide has shifted in their favor. Bearishness in the trade today has overshadowed predictions that India is set to overcome China as the world’s largest consumer of oil. A fresh negative came from the US Sec. of energy suggestions yesterday that the US government was “waiting for more price declines” to refill the strategic petroleum reserve. Yet another potentially supportive development overnight that is being discounted this morning are reports of a 2 year low in Canadian oil rail exports to the US. On the other hand, it is possible that bearish sentiment can become overdone quickly following rumors overnight of a single $60 million bearish option position reportedly placed in $60 puts. It should also be noted that Bloomberg yesterday showed Chinese traffic congestion measurements as of March 22nd showed a 3% week over week decline. Bloomberg also reported that traffic congestion in North America and Europe declined while other areas in Asia besides China increased moderately.
Once again we are surprised with the natural gas market’s capacity to respect this week’s consolidation low support around $2.26 as external and internal fundamentals continue to deteriorate. Unfortunately for the bull camp in natural gas yesterday’s weekly EIA storage build was low relative to typical seasonal levels. However, the surplus of inventories to the 5-year average dropped relative to last week but remains at more than adequate levels with a 22.7% surplus. Over the last four weeks natural gas storage has declined 295 bcf. In retrospect, natural gas prices likely saw some support yesterday from cold temperatures in Europe into early next week but at this point in the winter heating season normal cold is likely to only be a temporary discouragement to the sellers. In the end, we see very suspicious support today at $2.2630 and doubt the market will be able to stand up to inside and outside market pressures.
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