Written Commentary
NATURAL GAS
Natural gas extended yesterday’s losses overnight ever so slightly. While the downside action yesterday was not significant, the charts were damaged, and the bull camp has very little argument against further declines over the coming sessions. Russian gas flow through Ukrainian pipelines to Europe continues without change, and in the US, the beleaguered Freeport LNG export terminal continues to ramp up its output. US supply has effectively made it through the winter season without a major drawdown. Production continues to be strong, and despite record export flows, it is possible that the domestic supply and demand equation will remain steady. With the downside breakout yesterday, the bear camp has regained control, but volume has started to contract as prices approach the $2.20 level. The spec and fund net short continues to expand to excessive levels, and there has been very little discussion about prices approaching the cost of production.
CRUDE OIL
Crude oil barely extended Monday’s sharp rally overnight to a new two-week high and was holding its gains coming into this morning’s action. With the global financial sector crisis moderating and favorable signs of Chinese February crude oil imports, the bull camp has regained some footing. The slide to $65 in May crude oil may have pulled the spec and fund net long to its lowest level in seven years, which would reduce the potential for massive stop loss selling on weakness and perhaps increase the prospect of bargain hunting on price dips. There are two geopolitical issues that could cause supply flow disruptions, with the US and Mexico locking horns over oil market issues and Turkey and Iraq battling over pipeline shipments originating in northern Iraq. Apparently, the US thinks Mexico is unfairly favoring domestic companies despite an agreement to open the markets. There is a threat of increased tariffs that could disrupt the flow of petroleum products between the two countries. The ongoing investigation of the undersea pipeline explosion last year also puts the market on edge, with some debris found last week around the damaged pipeline, reportedly from a surface ship. There continues to be evidence of strong Indian crude demand, which is a positive sign for global demand but not exactly beneficial to Western and Middle Eastern oil producers.
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