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Energy Markets Shift To Corrective Mode

CRUDE OIL

As in other physical commodity markets, the energy markets have shifted into a corrective mode as recent optimism toward global energy demand has been challenged over the last 24 hours. Furthermore, supply fundamentals were tipped in favor of the bear camp overnight following a 7.6-million-barrel jump in API crude oil stocks. After the close, the API survey said that US crude oil stock had a weekly increase of 7.6 million barrels which was in sharp contrast to trade forecasts for a moderate weekly decline. In retrospect, energy markets appear to have shifted focus from the prospect of a US Fed pivot and global recovery and are embracing increased global slowing fears. Furthermore, the action in crude oil yesterday appeared to be a classic “buy the rumor” and “sell the fact” reaction and that selling action might follow through today. Some analysts have predicted 2023 US oil demand will also hold significantly above the prior 2 years and even above pre-pandemic 2019 levels. On the other hand, overbought technical conditions and negative fundamental developments over the last 24 hours give the bear camp confidence today. With open interest and trading volume in March crude jumping significantly on Tuesday and given the chart reversal yesterday, further corrective action is likely.

NATURAL GAS

With the downside breakout yesterday, the natural gas market has likely returned to the bear trend. Apparently, the prospect of cold temperatures later this month in the US and expectations for cold in western Europe to extend into next week is providing some support as the washout yesterday was less severe than recent declines and the charts suggest the trade is attempting to build consolidation support. A fresh long-term negative was also thrust onto the gas market this week from European predictions of achieving full capacity supplies this summer which in turn are thought to be capable of meeting next winter’s demand. A shorter-term bearish factor is this week’s Reuters survey projecting below normal seasonal withdrawals in US gas in working storage. In our opinion, the downtrend in natural gas has resumed, with the market renewing its attempt to factor in a “mild winter” and deteriorating demand views from increased economic anxiety.

 

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