Written Commentary
CRUDE OIL
Despite negative overnight fundamentals of a 2% rise in European crude oil in storage, projections of a jump in Chinese daily infections to 36,000 (because of holiday travel which begins today) and forecasts of a bigger surplus from the IEA crude oil prices have aggressively extended a recent pattern of higher highs. The IEA predicted that global oil supply could exceed demand by 1 million barrels per day in the first quarter. The IEA also indicated they expect the surplus despite the reopening of China. However, ongoing, and significant declines in the US dollar should increase demand for WTI possibly at the expense of Brent crude. It should be noted that OPEC has forecast balanced global first quarter oil market.
The upside action in the gasoline market continues to be impressive with the market nearing the January highs despite a pair of negative fundamental headlines overnight. In addition to this week’s Reuters survey predicting an inflow of 2.3 million barrels to EIA gasoline inventories the trade was presented with news that China continues to expand import quotas for Chinese refineries. Therefore, the global refinery situation increases the likelihood of significant price volatility ahead as China appears to be adjusting import and refinery throughput because of the potential for Chinese refineries to profit from solid crack margins. Perhaps the bull camp continues to feed off the latest implementation new European Russian fuel export restrictions.
NATURAL GAS
On one hand, the bull camp is hopeful that the building consolidation pattern will offer support against a warm start to the European winter. However, the market is drafting a measure of support from predictions of a very cold US finish to the month of January. Unfortunately for the bull camp European forecasts predict ongoing mild temperatures ahead! As we have pointed out over the last several months the net spec and fund short in natural gas continues to expand and remains extreme and that highlights widespread bearish gas price views. With LNG in global floating storage increasing by 9% over last week and the likelihood of at least another month of delays in restarting the Freeport LNG export facility, natural gas supply fundamentals remain solidly in the bear camp.
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