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Natural Gas Volatility Continues


Natural gas had a downbeat finish on Friday that resulted in a negative weekly reversal from last Monday’s five-week high. It has regained some strength overnight and is posting decent gains this morning. The market has not been able to maintain upside momentum since its rally over the first weekend of November that was in reaction to a colder weather forecast for the US. The temperature outlooks have moderated a bit, and the market continues to be volatile. Longs from the early November rally may have finally run out of patience and sold out of their positions late last week. Germany’s meteorological office said that their nation could be in for a mild winter, and the latest US 8-14-day forecast has near normal to above normal temperatures across the western third of the continental US. Indications that the Freeport LNG export terminal may not resume any operations until December also pressured the market going into the weekend. However, the Baker Hughes US gas rig count has been stable over the past few months, which suggests that US gas production is not going to post a new record anytime soon. US residential, industrial, and power plant demand for natural gas is expected to increase next week, which could keep prices above their recent lows.


The petroleum markets are seeing mixed results this morning, with volatile action inside their October/November trading ranges. If there are signs of demand improvement or an improvement in global risk sentiment, crude oil and RBOB gasoline may extend their recovery moves. January crude oil finished Friday with a strong gain, but it gave up early gains overnight and is under significant pressure this morning. A sharp increase in new Covid cases in China has traders concerned about demand. There are reports that Chinese refiners are pulling back on Russian crude oil purchases. US Treasury Secretary Yellen said that India can buy Russian oil at any price, just as long it does not use maritime services or insurance from Western nations. Iraq’s Prime Minister said that his nation needs to expand its oil production to generate more revenue and rebuild its country. He also said that OPEC Plus needs to reconsider its current production quota. The Baker Hughes US oil rig count rose by 9 rigs to 622 last week, the largest increase since late June and the highest overall reading since March 2020. The Permian basin count increased by 4 rigs, and “others” increased by 5, which suggests that firms are increasing their exploration efforts. However, Canadian oil rigs fell by 8, and at 133 they are at their lowest level since late July.


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