Written Commentary
NATURAL GAS
With a fresh downside breakout extension in the early going today it is clear that the market has not found a value zone yet. In fact, with European temperatures forecast to turn milder next week and European officials claiming great success in conserving energy, there is no visible demand reason to think the downtrend has run its course. Furthermore, the recent cold wave in northern Asia is also forecasted to return to milder temperatures. In fact, until the markets shift to the potential for a soft US landing, outside market influences for natural gas will likely remain negative. We see no major catalyst suggesting the downtrend has run its course. We do suggest that it will take several paradigms shifts in fundamentals to see prices regain the $3 support shelf. In fact, weather forecasts continue to project normal temperatures for the rest of January.
CRUDE OIL
With a 4-day low in crude oil in the early action the market appears to be undermined somewhat by ongoing negative economic sentiment and because of a larger than expected jump in API crude oil stocks from yesterday afternoon. While hope for growing Chinese energy demand continues to underpin prices, until there is a distinct peak in daily Chinese infections, we think it is dangerous to push prices above this week’s high without some confirmation of improving conditions inside China. However, optimistic demand views are bolstered by record Indian oil imports last year and from a month over month increase in Indian imports in December. Another supportive development is a shift from backwardation to contango in prompt Brent crude pricing overnight. In a longer-term overnight bearish development Iraq has restarted oil production from a southern field which reportedly has a capacity of 100,000 barrels per day. From a global development, seeing the US consider shipping very powerful and extremely expensive “M1 Abrams” tanks and seeing Britain potentially contributing tanks to Ukraine that could tilt the battle in favor of Ukraine and could also prompt a surprise reaction from Putin. A limiting development from yesterday flowed from an OPEC+ panel with officials suggesting they are unlikely to tweak policy in next week’s meeting. After the close, the API survey showed US crude oil stocks had a weekly increase of 3.4 million barrels which was a larger increase than trade forecasts. In a slightly supportive technical signal, the slide off this week’s high saw trading volume decline in a possible sign that the bear camp is not waiting in numbers to attack. In conclusion, the March crude oil contract into the close yesterday sat roughly $6.00 above the early January low with the bull camp to a possible fault expecting Chinese demand to remain strong, the US economy to maintain forward traction and hope that EIA crude oil inventories this morning will avoid a double digit million-barrel jump in crude oil stocks.
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