Written Commentary
CRUDE OIL
While crude prices forged fresh contract highs overnight, prices have initially retrenched from those highs as if waiting for additional Russian/Ukraine news. In fact, Brent crude oil pricing is now within striking distance of the psychologically important $100 price level and the energy markets are likely to see further inflation buying from the funds. It should also be noted that Asian buyers have stepped up their interest in securing supply as they are fearful that Russian exports could be blocked. When the crude oil market rallies more than $3.00 in a single session, there are usually several forces at work. Apparently, buyers were stirred late last week by International Energy Agency predictions of a stellar recovery in energy demand from pandemic lows to pre-pandemic highs. The IEA also indicated that Saudi Arabia and the UAE could help balance the world market with increased production, but that news was combined with evidence that OPEC on a month over month basis is adding back only incremental supply.
Not to be outdone, the gasoline market followed crude higher and reached new contract highs overnight. To determine the next stopping point on the charts requires weekly charts and a price that is $0.06 above Friday’s close. With the daily US Omicron/Delta infection count at only 170,000 last Friday, the infection situation remains an issue but is moderating quickly. Therefore, we see the demand side of the equation as bullish especially with the EIA gas stocks last week shifting into a year-over-year deficit again.
NATURAL GAS
In the short-term, mild temperatures are keeping the bear camp emboldened and a slide down to $3.75 should not be ruled out directly ahead. On the other hand, prices below $4.00 have little “war premium” and Russian gas supply continues to flow in reverse fashion. Given the sharp washout in natural gas prices last week, this week’s COT positioning report dramatically understates the size of the net spec and fund “short”.
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