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Improved US Energy Demand

CRUDE OIL

In addition to unwavering expectations of an unleashing of pent-up energy demand in China from a very long period of restrictions, the outlook for US energy demand was also improved this week by mostly positive scheduled US data. It should be noted that the net spec and fund long position in crude oil recently has held consistently near the lowest levels spec long levels in 2 years which should indicate residual buying fuel remains. Adding to the bullish bias this morning is strong Brent and WTI time spreads, reports that OPEC plus will remain “ultra-cautious” and a forecast by UBS that crude oil prices in the coming “months” could reach above $100! The lofty price projection from UBS is given added credence following Goldman Sachs warnings that the Russian price cap and the European import ban are likely to create extreme volatility in the energy space. However, for improved demand expectations to be fully priced probably requires on the ground confirmation of moderating infections in China next week. Two fresh bigger picture developments this week that could prompt significant volatility ahead are shipments of US and UK tanks heading to Ukraine and seeing Chevron promising to buy back $75 billion of their own shares. Not only could the highly sophisticated US and UK tanks help the Ukrainian Army significantly, but Putin also sees the shipments as a direct involvement in the war. As for the Chevron stock buyback, the plan has already prompted harsh chatter from the US administration and from Congress and crazy ideas by the President and Congress to prevent Chevron from reducing its outstanding shares could provide bullish supply news. In today’s action, the US will present another wave of data points, but favorable US data yesterday did not seem to add markedly to pre-existing gains in crude oil prices.

Oil field

NATURAL GAS

Despite some recent cold and extremely oversold technical signals, the bear camp has maintained firm control over natural gas. However, adjusted for the $0.57 decline following the January 17th COT positioning report, the net spec and fund short in natural gas (futures and options) the net spec and fund short has probably expanded significantly and is likely approaching 2 1/2 year highs. The bear camp should be advised that the Freeport LNG export terminal received EPA approval to begin preliminary work to restart their operations. Furthermore, company officials are rumored to have announced impending export flow. In the end, the bull camp desperately needs a full restart of the Freeport export terminal quickly as well as a definitive shift into much colder than normal temperatures in the US and or in northern Asia and Europe.

 

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