Written Commentary
CRUDE OIL
With talks between Russia and Ukrainian officials not expected to yield positive results (if there is a cease-fire agreement the Russians plan to use that as time to regroup without being attacked. While the trade has constantly focused on the potential for a western embargo of Russian oil it is increasingly possible that Russia could embargo oil gas exports as an economic threat against wave after wave of sanctions placed on them. Reports of stiff Ukrainian resistance lowers the potential for the Russians to obtain objectives before the bite of sanctions cripples the Russia economy. On the other hand, if pockets of Ukrainian resistance remain a force for weeks, the conclusion is likely to be capitulation or domination.
We continue to see the gasoline market as the least bullish component of the energy complex with US gasoline stocks consistently running at a surplus and talk that extremely cheap ethanol will be brought into the market. With the net spec and fund trade adding minimally to its pre-existing net long on last week’s major flare-up, the market retains buying fuel. As indicated in other coverage today, we see a potential quick end to the crisis which in turn would put significant pressure on gasoline.
NATURAL GAS
After some very violent action last week, the natural gas market could have entered the new week vulnerable to further liquidation action. However, colder European weather and a very real potential for supply disruption from Russia could provide a powerful range up move. In fact, several LNG buyers have halted purchases from Russia and German data had power prices today jumping by 14% from the previous day and are now up 60% from week ago levels. On the other hand, there are reports that the Russian national gas company booked capacity from Yamal to Europe today in that pipeline and that would be a major bearish development if that gas is indeed flowing west.
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