Written Commentary
NATURAL GAS
Even though signs of a restart of the beleaguered Freeport LNG export facility are surfacing, the natural gas market remains on a downward track. The gas market appears to be predicting the entire winter season will be mild. The 1-to-5-day US weather forecast projects warm in the Southeast and much below normal temperatures in the Midwest, Southwest, Central, and Western regions. However, the 6-to-10-day US weather forecasts moderate cold temperatures in the Northeast and shifts the US Midwest temperatures back above normal. The temperature outlook has shifted colder for Europe but apparently not cold enough to threaten the bear camp. Evidence of the dominance of the bear camp is the markets lack of strength this morning following reports of a reduction in Russian gas flows through a pipeline in Ukraine. Given entrenched bearishness off rising chatter of a “mild winter” and the markets remaining unsure as to the condition of the Chinese economy, the path of least resistance remains down in natural gas prices. At this point, an official notice of impending tanker loadings at the Freeport export facility might have little sustained impact on prices.
CRUDE OIL
In today’s action deteriorating economic sentiment (despite favorable Chinese PMI readings), a strengthening dollar, evidence of very large Russian export flow to Asian countries and a lack of threatening news from an OPEC+ panel meeting leave March crude oil on a direct path to test levels under $75.00. It should also be noted that the crude oil market has discounted a private consultancy predicted oil demand in China may expand by more than 10% in the 2nd quarter relative to last year, but that news was also discounted. In another discounted overnight bullish development German imports of US crude in the latest monthly data (October) posted 5-year highs with Russian crude oil export flow to Germany the lowest since January 2018. Dampening the negative impact from macroeconomic anxiety are comments from Russia suggesting the global price cap will ultimately result in a definitive expansion of Russian exports! Furthermore, the bull camp should derive some confidence from BBC reports that Chinese health officials have indicated the current infection wave is coming to an end especially with evidence that the Chinese economy has held up through the worst of the infection flare. While the bear camp benefits from unchanged OPEC+ policy, OPEC+ did indicate they could without notice announce a change in their policies. We also suspect the crude oil market will continue to face demand concerns from an increase in economic uncertainty into three probable central bank rate hikes later this week.
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