New Contract Low in Nat Gas
Another day, another new contract low in natural gas as both supply and demand remain definitively bearish. Minor negatives adding to the downward tilt in prices are a return pre-war exports of Israeli gas to Egypt and news that Colombia will consider importing natural gas from Venezuela as that tamps into supply previously not open to the world market. While temperature forecasts remain bearish with slightly warmer forecasts for the northern and northeastern US out to the end of the month, colder temperatures in Europe over the coming days should temper selling today. However, Goldman reduced its European gas price forecast because of the full capacity storage ahead of the winter. As we indicated yesterday, to see a bottom in natural gas requires evidence of a massively short spec and fund positioning or some other major unforeseen development.
The slightly lower track this morning is partially justified by the strong rally yesterday which did not appear to have a definitive fundamental origin. However, the energy markets are set to benefit this week from the potential for deeper production cuts from OPEC+ from this weekend’s upcoming meeting. On the other hand, sentiment is divided on the outcome of the upcoming OPEC+ meeting with expectations for deeper cuts countervailed by ideas that the restraint agreement might not hold into the new year. However, according to a Bloomberg story overnight oil options traders are currently predicting a 53% chance that OPEC plus production will be cut this weekend. However, China apparently imported less crude from Russia last month which many see as a confirmation of residual weakness in the Chinese economy. In another minimal negative Iran has predicted its production will increase to 3.6 million barrels per day (from 2.3 million barrels per day) at the end of their current year which ends March 2024. Iran also predicts their production will rise to 4 million barrels per day next year. It is also likely that crude oil and some physical commodities are set to benefit from the noted and likely ongoing downside extension in the dollar. However, we are suspect of the argument that the end of the US rate hike cycle will improve energy demand prospects, especially after US scheduled data turned off soft over the last three weeks. This week’s Reuters poll projects EIA crude oil stocks to increase by 1.5 million barrels which would be the third straight week of inflows amounting to nearly 19 million barrels. In today’s action, we suspect an extension of the bull track from the talk of production cuts, but to forge a second day of strong gains like yesterday might require a risk-on environment throughout the markets.
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