Nat Gas Remains in Liquidation Mode
Not surprisingly, natural gas ranged down sharply yesterday and remains in a liquidation mode which could result in a retest of the early July consolidation zone lows at $5.73. In fact, wholesale prices and futures prices remain under pressure despite widespread evidence of supply hoarding throughout the world. Overnight reports indicate that extreme tightness of shipping space has resulted in a massive spike in Asian liquefied natural gas tankers which in way confirms ongoing efforts to build strategic storage supply. According to Bloomberg LNG freight rates have reached $450,000 per day which is a record level. Bloomberg overnight also reported that supply levels in Europe and Japan are now higher than average heading into the winter months with European gas storage sites estimated to be 92% full and German supplies reportedly at 95% of capacity. With European and North American temperatures expected to be mild for the next two weeks and Ukraine indicating Russian gas flows through their pipelines remains steady more declines are expected. In a shorter-term negative, Scandinavian, Dutch, and German wholesale prices are under significant pressure meaning that aggressive buying for storage has become less aggressive.
While the path of least resistance in crude oil is pointing down today from a 2.7% weekly jump in ARA crude oil stocks in storage, early corrective action in equities, a strengthening dollar, higher treasury yields and projections of softening energy demand from Bloomberg news, the crude oil market has generally tracked positive in the early hours. However, WTI prices should remain softer than Brent crude prices given renewed strength in the dollar and pressure from the anticipated release of supply from the US Strategic Petroleum Reserve. In retrospect, with a downside failure on the charts in crude oil yesterday taking place in the face of an extension of risk-on in equities, reports that the OPEC+ 2 million bpd production cut vote was unanimous and given weakness in the face of reports that Indian refiners have halted spot oil purchases from Russia (because of EU sanctions) the bear camp has clearly gained control. Seeing India slow or halt purchases from Russia shifts that demand toward the world markets. The trade is also aware of an impending 15-million-barrel oil sale from the SPR, and fear of slower Chinese oil imports has escalated after China announced it was delaying the release of its GDP report until after the central planning meeting adjourns. In addition to bearish internal supply and demand factors, energy prices are likely to remain under indirect pressure from the highest US treasury yields since July 2011 and from ongoing strength in the US dollar.
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