Written Commentary
CRUDE OIL
In retrospect, the petroleum markets bought the rumor of a recovery in Chinese energy demand from “opening up” optimism last week. However, global macroeconomic psychology appears to have shifted bearish from last week, perhaps because of concern for central bank rate hikes this week. On the other hand, the Russians have aggressively escalated their attacks perhaps because of the promise of sophisticated Tanks from the US and UK. Fortunately for the bull camp, bearish macroeconomic pressure will be partially mitigated with a 16% decline in global crude oil in floating storage on a week over week basis. Another potential supportive element in today’s trade is evidence of a significant increase in bullish Brent and gasoline long speculation. Certainly, the petroleum markets could derive support from an attack on an Iranian military complex rumored to be carried out by Israel. In another bullish crude oil development and a potential bearish development for product markets, China indicates state refiners will increase their run rates by 1%-2% next month. Given the large range down failure in March crude at the end of last week and a fresh lower low for the move this morning, the bear camp has the edge from a technical perspective. On the bullish side of the supply equation, it is possible that the Russian “workaround” of price caps, shipping limitations and other embargo factors has resulted in a backup of cargo shuttle tankers with Russian Sokol crude destined to be loaded on oceangoing tankers building. At least until midweek, the focus of the energy markets will likely center on demand with equity markets (particularly those in China) providing some direction in the coming sessions.
NATURAL GAS
Even though the natural gas market is significantly oversold from both short-term and intermediate perspectives, periodic and limited duration cold weather systems are being more than offset by higher-than-average temperatures. In fact, at this point a significant deep freeze might not result in anything but a loss of downside momentum. On the other hand, from a technical perspective the net spec and fund short in natural gas adjusted for the slide of $0.39 (into last week’s low) should leave the gas contract with the largest net spec and fund short positioning since March of 2020. The bear camp continues to have a firm grip on prices with bearish fundamentals firmly entrenched in the headlines. However, Freeport’s public relations personnel reportedly indicated last week that they are already testing the system with pressure flows which could lead to a resumption of seaborne LNG exports. Unfortunately for the bull camp, the trade is fully aware of the potential for increased US exports from the Freeport facility and is largely unmoved. Therefore, unless the trade shows a significant bounce from the reopening of the Freeport LNG export terminal, the bear camp will maintain its iron grip on gas prices.
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