Written Commentary
CRUDE OIL
About the most positive thing that can be said about crude oil action this morning is the market’s ability to “initially reject” a major washout. Obviously, energy demand fears are front and center and severe with significant and conclusive global equity market declines overnight giving the bearish commodity views significant pedigree. Therefore, a Goldman prediction of $100 oil in 2023 and forecasts that Brent will hover around $85.00 are largely discounted.
Obviously, the path of least resistance is pointing sharply lower this morning, but the product markets have several bullish fundamental forces helping to cushion the long liquidation blow. Cushioning forces for gasoline to start the week are reports of heavy Florida demand for US Gulf Coast gasoline, a sharp decline in Chinese November gasoline exports (down 35.8%), and predictions from Goldman that demand for refined products will remain strong into 2023. While not a direct impact on international product prices, traders should watch for signs of increased Russian fuel export taxes or export restrictions as the Russian government attempts to squelch domestic inflation by keeping fuel supply inside the country.
NATURAL GAS
While natural gas market could be heavily impacted by the situation in Ukraine, the near-term focus has shifted to macro-economic conditions. On the other hand, natural gas has rejected last week’s spike down move area, and we suspect that is built on several bullish fundamental developments. Bullish fundamentals include lower Bakken Basin production, record natural gas deliveries to China, chatter that natural gas might be considered a bridge feedstock to greener energy and perhaps most importantly threats from Germany that they will block Norge stream 2 if Russia escalates conflict with Ukraine.
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