Written Commentary
NATURAL GAS
The natural gas market fell back yesterday with a sharp rally on Tuesday resulting in a drop in open interest, which we think signals traders think levels $2.78 level are expensive. Furthermore, a drop in Freeport LNG feed gas inflow to its Texas processing/export facility could serve to back up supply. In fact, Freeport has reportedly canceled four intake cargoes since the latest problem surfaced and that could quickly back up US supplies. On the other hand, despite last year’s fire which shut down the Freeport facility from June 2022 to March 2023, the US gained the title of the world’s largest gas exporter in the first half of 2023. Therefore, one should assume that a full year of capacity exports from a key export terminal would leave the US vying for the title of largest exporter again next year. Unfortunately for the bull camp, mild temperatures and the lack of a credible hurricane threat should embolden the bear camp today, especially if the injection report shows inflows near the top of the anticipated range. The latest Reuters poll projects EIA gas storage to increase by 48 BCF.
CRUDE OIL
With November crude oil prices this morning remaining near yesterday’s new high for the move, the US Energy Department has apparently “talked to” oil producers and refineries hoping to pressure them into raising supply and dampening prices. Perhaps the DOE should not dictate policy which results in energy companies avoiding investment in developing extra supply. The unrelenting upside action in crude oil is very surprising as the tight supply theme has managed to stick in the headlines for weeks and that continues to prompt speculative and hedge buying. However, with the high today, crude oil futures were trading $3.00 a barrel above the level where the last COT report was measured, that might put the net spec and fund long to the highest level in 13 months. It is also possible that the presence of $100 per barrel price forecasts overnight are the beginning of overly bullish sentiment. On the other hand, the IEA thinks ongoing production cuts by Saudi Arabia and Russia will result in a “significant supply shortfall” for the rest of this year which keeps the market’s focus on supply rather than demand. According to the IEA monthly oil report, the global deficit in the 2nd half of this year is likely to be 1.2 million barrels per day. Unfortunately for the bull camp, this week’s API and EIA inventory data showed noted builds in crude oil inventories and the EIA indicated US crude production increased by 100,000 barrels over last week. However, it should be noted that the US refinery operating rate remains high and has been above a year ago and 5-year average levels in 8 of the last 9 weekly readings and that could help meet strong global diesel demand. With the latest RSI in October crude oil still below the RSI posted on September 6th, there could be residual technical buying fuel on the sidelines. We see uptrend channel support in November crude oil today at $88.27.
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