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More Gains in Petroleum


Obviously, the energy complex is moderating demand fears in place from the first half of this month and crude oil has benefited from a wave of short covering/profit-taking this week. Furthermore, there is a modest risk on environment in place this morning and there have been fresh positive demand stories released over the last 24 hours. While the trade might focus on the largest jump in monthly Indian crude oil imports in 7 months in February, overall Asian oil demand has also remained strong. Not surprisingly, many traders are embracing evidence of a rebound in the Chinese economy which Bloomberg overnight points out is responsible for about 76% of this year’s expected gain in oil demand. Along those lines, Chinese traffic congestion levels continue to rise and there are other industrial commodity consumption signals of improved growth coming from the country. In another possible but suspect bullish overnight development, the press is suggesting Russia is nearing its target of reducing oil production by 500,000 barrels per day this month. However, production estimates into midmonth suggest the Russians have not reduced production at all. While the weekly EIA report was not patently supportive of crude oil in the main inventory reading which posted a gain of 1.1 million barrels, a fresh record low in East Coast crude oil supplies, a massive 6.3-million-barrel decline in EIA gasoline stocks and large declines in both distillate and diesel stocks provide the bull camp with more bullish than bearish issues from the EIA. Supplies at Cushing, Oklahoma also continued to decline with a 3rd straight week of lower inventories. In conclusion, severe demand concerns from the macroeconomic level are moderating, the crude oil market was significantly “sold-out” and the spec in fund long position and signs of improving Chinese energy demand are likely to add to this week’s recovery bounce.

gas pump in car


In retrospect, the natural gas market saw macroeconomic support yesterday and today it appears the market will see support from ongoing French strikes and colder weather into early next week. However, one market participant in Europe overnight suggested Europe and parts of Asia had seen an “incredibly mild winter” and that has clearly left supply and demand fundamentals in the bear camp. In a demand limiting headline overnight, a consulting group indicated Chinese gas consumption is recovering but rapidly expanding domestic output and ramped up Russian imports will likely limit imports from the world at large. While there are signs that overall US gas exports are on a track to post record levels, the US is oversupplied and continues to see slack heating consumption. It should be noted that the Freeport export facility saw a slight reduction in flows yesterday compared to Tuesday, but expectations are the volumes will pick up again quickly. The path of least resistance is down and without a surprisingly larger than expected draw in EIA working gas in storage and or a significant risk on vibe throughout the marketplace, we see fresh contract lows.


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