Written Commentary
CRUDE OIL
Internal fundamental forces in the crude oil market are of little importance today! In fact, yesterday’s large jump in API crude oil stocks is of no interest to the market today. Furthermore, the weekly EIA data this morning will be of little importance to the trade. In our opinion, the energy markets are factoring in an energy embargo of Russia and even if that does not happen in the end, the trade is likely to overreact in the coming 36 hours. However, OPEC has suggested they see no immediate need to respond despite oil prices above $100 and that is a very bullish development. While Russian energy exports might be embargoed by large portion of the world, we doubt countries without significant domestic oil production will halt their imports from Russia.
As indicated in crude oil coverage, the direction of RBOB prices is almost exclusively set to be determined by the actions of Vladimir Putin. While geopolitical opinion-based trades are highly suspicious, a large portion of the world does not expect Putin to stop at his current position. From a technical perspective, the gasoline market enters the Ukraine takeover with a very modest net spec and fund long and that indicates the market has significant additional buying powder.
NATURAL GAS
On one hand, we are surprised in the lack of significant upside extension in natural gas prices given the prospect of a disruption of Russian LNG flow to the West. However, a portion of the trade thinks embargoes of gas shipments at this time will result in more damage to Europe than to the Russians. Furthermore, the threat of a reduction in gas flow to Europe would likely spark a large jump in US Gulf LNG prices as bidding for export supply expands sharply. It should also be noted that Chinese gas prices reached record levels off cold and aggressive bidding for supply by the importers.
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