Written Commentary
NATURAL GAS
Despite a much smaller than expected injection into weekly storage, natural gas prices caved in and appeared to be poised to fall to consolidation support carved out last week. However, a moderation of temperatures has reduced the prospects of significant tightening at the end of the cooling season. Certainly, the surplus to the 5-year average storage level has declined in the US, but it remains at a double-digit surplus readings. While both 48-state dry gas production and lower 48-states gas demand yesterday increased, gas production is much larger on an absolute basis leaving supply and demand news bearish. In a minimally bearish development, US dry gas exports to Mexico declined as did estimated gas flows to LNG exporters. The path of least resistance is down with a chart failure yesterday and cooler weather forecasts more than offsetting a smaller than expected weekly injection reading. Certainly, the surplus versus the 5-year average stock level continues to decline but some traders are beginning to look forward to the end of the cooling season without inventories shrinking markedly.
CRUDE OIL
While the crude oil market is technically overdone and perhaps a bit overconfident in the prospect of improving global energy demand, the outlook for the US economy continues to improve and with the US economy still considered to be the primary engine of the world economy, the gains off last month’s lows are backed up by solid economic evidence. Even the supply-side of the equation favors the bull camp, with Russia pledging to meet its OPEC plus output cut commitments. In fact, Bank of America overnight indicated that if Russia continues to reduce exports, the rally in crude oil prices could accelerate. As indicated many times over the last several months speculators migrated away from long crude oil positions over the last 6 months because of fears of recession from over tightening and that has left the net spec and fund long position in crude oil around 8-year lows. Therefore, crude oil futures should retain significant buying capacity especially if this week’s risk on environment extends. However, surging gasoline pump prices are beginning to eat into disposable income and disposable spending and therefore today’s US personal income and spending readings could have a direct impact on crude oil prices. Expectations for today’s personal income and consumption readings are for positive results. It is also possible that seeing crude oil prices climb above the G7 Russian cap price fosters concern that some entities will begin to find non-Russian supplies (buying interest for all global supplies).
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