Written Commentary
NATURAL GAS
After 8 gains in 9 trading sessions the April natural gas contract was due for noted corrective action. In fact, given a lack of below normal temperatures in large portions of the US and an extension of cold in Europe into April, the bear camp remains confident that serious winter shortages are becoming less likely by the day. Furthermore, while Freeport LNG export activity is returning to normal, seeing weekly withdrawals of only 2 digits has continued to catapult the current US gas in working storage to a surplus of nearly 20% of the 5-year average inventory levels. Therefore, even at full export capacity the Freeport facility is unlikely to tighten the national natural gas supply situation without extreme cold weather. For some inexplicable reason, the Russian national gas company continues to ship natural gas through Ukrainian pipelines. With the significant reversal from last week’s range up move, it now appears the natural gas market has forged a “blowoff” top. From a fundamental perspective, the bear camp has definitive control again with supply and demand easily capable of throwing prices back to the February lows below $2.23.
CRUDE OIL
With another higher high for the move early today and the highest trade since January 27th the bull camp continues to control despite potentially negative demand news from China overnight. Apparently Chinese January and February crude oil imports were down 1.3% versus year ago levels, but weather, product supplies and modifications to strategic supplies reduces the predictive power of year-over-year developments. However, Bloomberg traffic congestion levels have apparently rebounded while European traffic levels last week came in higher than year ago levels. Adding into the pre-existing bullish tilt from the late February low are Russian announced plans to reduce production this month by 500,000 barrels per day. However, after 7 days there are no signs, Russia has already reduced national exports! There are reports that Russian seaborne exports on a week over week basis declined which is in line with a Russian mandate several weeks ago to reduce Western port seaborne flows. In an upcoming bullish development expected to increase US crude exports, the trade is anticipating work to deepen a ship channel from the port of Corpus Christie to open water to be completed soon. Even though the markets are heavily focused on demand news from China, seeing Spanish January crude oil imports increase by 6% versus year ago levels certainly helps underpin prices today. Furthermore, interest in west African spot crude supply has expanded offering another positive demand argument. The markets have also interpreted a 2nd straight month of increased Middle East prices to Asian customers as a sign of improving demand in that region.
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