Written Commentary
NATURAL GAS
While the natural gas market continues to respect consolidation low support at $2.00, supply fundamentals remain bearish, and a downside breakout could present without notice. However, reports of emerging market purchases and more importantly ongoing European attempts to refill to capacity should discourage sellers. Reports over the weekend indicate German gas storage declined to 64% of capacity with the EU at 55% of capacity. Furthermore, Poland registered the 2nd lowest percentage of fullness versus its five-year average (according to Bloomberg). Fortunately for the bull camp, the net spec and fund short in natural gas remains significant with open interest sky high at 1.3 million contracts. In retrospect, the weekly natural gas storage report was bearish on its face with a minimal withdrawal likely to be the last or 2nd to last withdrawal of the season.
CRUDE OIL
While we see global economic sentiment gradually improving from the US bank sector setback, strength in crude oil prices this morning is likely attributable to comments from the Russian oil minister yesterday that they cut production last month by 700,000 barrels per day despite a “pledge” of a reduction of only 500,000 barrels per day. However, the energy markets doubt the magnitude of Russian production cut claims with physical flows seemingly remaining steady. A potential sign of a bullish bias in the marketplace is higher action in the face of a 6.8% rise in global floating crude oil in storage last week. Fortunately for the bull camp floating storage in the Asian-Pacific region declined thereby keeping favorable overall demand views in place. Furthermore, despite US Gulf Coast floating storage up 112% last week the trade remains upbeat toward WTI perhaps because of ideas that US oil will find foreign buyers. As in many other physical commodities markets this week, we see big picture macroeconomic influences dominating following the release of global inflation reports. However, before the major big picture junction on Wednesday, the trade will be presented with OPEC and IEA monthly market outlooks which we think will favor the bull camp.
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