Natural Gas Bias But Overbot
It should be noted that natural gas prices have exhibited significant volatility throughout thinned holiday trading conditions and that points to a volatile extension next week. This week’s EIA natural gas in storage report showed a withdrawal of 80 BCF which was at the low end of the expected range of withdrawals. However, the withdrawal pushed the inventory deficit relative to the 5-year average up to 1.1% from 0.2% the prior week and we are just entering the winter.
The path of least resistance in crude oil today remains down with Chinese Covid conditions worsening with record daily infection counts. At least in today’s holiday thinned action the prospect of aggressive Russian retaliation of a looming price Cap is unlikely to surface. In retrospect, crude oil prices should draft support from large declines in API and EIA crude oil stocks earlier this week. In fact, US crude oil inventories enter the North American winter season 24 million barrels below the five-year average and are likely to be held down by a very active US refinery operating rate.
From a longer-term perspective, consistently high US refinery operating rates should have resulted in a rebuilding of US product supply. However, despite US refinery activity running consistently above year ago and 5-year average levels, US EIA gasoline stocks currently sit 10 million barrels below 5-year average stock levels. In fact, several weeks ago EIA weekly gasoline stocks fell to the lowest levels since late 2014! Nonetheless, the path of least resistance is pointing down today.
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