Written Commentary
NATURAL GAS
While the natural gas market managed another higher high for the move yesterday, the market reversed course and has posted a lower low this morning suggesting the recovery bounce has come to an end. In fact, traders are beginning to look beyond the cold temperatures in both the US and Europe to more normal seasonal levels and therefore the hope of a significant late winter surge in demand should come to an end. Furthermore, US electricity output declined by 1.4% last week compared to year ago levels but that was countervailed somewhat by a 1% gain in electricity output over the last 52 weeks. However, the bear camp should be emboldened today by predictions that overall European gas consumption was reduced by 18% from conservation efforts. On the other hand, overnight stories indicate that European demand has recovered this week perhaps because recent gains prompted hedge buying.
CRUDE OIL
While there are several fresh bullish fundamental developments overnight energy prices continue to fall sharply from big picture economic pressure. A key positive from the overnight trade are reports from China that Chinese refineries processed more crude than ever last month, and yet crude oil inventories continue to expand. In China, few industries control their operations and therefore we suspect the Chinese government is directing refiners to continue to position supplies for a stronger economy. Along those same lines Chinese industrial output data for last month showed significant expansion in base metals and energy products. However, adding into the bearish track this morning are energy demand concerns from yesterday’s US Fed Beige book views that the US economy has “stalled in recent weeks”. On the other hand, the weekly EIA report showed a much larger than expected decline in crude oil stocks and that should underpin prices against the expansion of the year-over-year crude oil surplus. While the headline decline in EIA crude oil stocks yesterday was supportive, the year over year surplus expanded, implied gasoline demand softened, and gasoline inventories expanded leaving the net impact from the weekly report bearish. However, net US imports fell on the week, the strategic petroleum reserve returned to the lowest level since October 1983 and US exports increased by 1.84 million barrels per day. With technical damage on the charts and deteriorating economic sentiment the bear camp should retain an edge today.
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