Written Commentary
NATURAL GAS
With the natural gas market in freefall last week, it is apparent that many fundamentals (mild temperatures and no restart date for the Freeport export facility) leave the bear camp in control. In fact, without a decidedly colder shift in North America and western Europe temperatures, the best hope of any sustained positive daily trade will likely be limited to technical balancing. Last week, the Baker Hughes rig operating count saw US gas drilling rigs drop by four reaching the lowest level since November! The natural gas market is massively oversold and sits significantly below the level where the Russians invaded Ukraine. On the other hand, we suspect pressure on government regulators to stop holding up the restart of the Freeport export facility (to keep winter prices down for consumers) is likely to be challenged very vocally ahead.
CRUDE OIL
The extension of last week’s bounce in the crude oil is easily attributable to the improvement in global sentiment from soft landing forecasts, reports of a surge in Chinese travel and from a 2nd Chinese import quota which puts 2023 import quotas ahead of the pace seen early in 2022. Adding into the sentiment shift is a 5.9% decline in weekly crude oil in floating storage and a downside breakout in the US dollar. Therefore, we suspect Brent crude oil, and WTI crude oil ETF instruments will see renewed inflows especially after Bloomberg estimates overnight of $1 billion of inflows into Brent ETF instruments this week. However, daily energy demand concerns have also been offset by the threat of production cutbacks from OPEC+. In a bearish development, the Biden Administration last week rejected the first offers to rebuild the SPR. Fortunately for the bull camp, the net spec and fund positioning in crude oil (adjusted for the post COT report slide of $5.00) probably reduced the net spec and fund long to the lowest level since March 2016.
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