Written Commentary
CRUDE OIL
While no major bearish developments the trade this morning is presented with declines in Chinese house prices, an increase in Saudi crude production in September, an increase in Saudi oil exports in September and fears of softening Asian oil imports which gives the bear camp the edge again today. We also think oil prices will be pressured by fresh evidence of slowing in the US economy and from residual disappointment over the 17-million-barrel two week increase in EIA crude oil stocks. In retrospect, the energy markets clearly discouraged buyers this week with the market’s inability to benefit from what should have been a major windfall from vastly improved macroeconomic sentiment following the prospect that the US Fed is done hiking rates. At least initially, the energy markets have failed to benefit from a sizable drop in the dollar and lower interest rates. In yesterday’s weekly EIA inventory report, a much larger than expected crude oil stock inflow of 13.8 million barrels from the prior shocked the trade and that may keep would-be buyers on the sidelines.
NATURAL GAS
The bull camp hopes a drop in wind power generation in Europe, an outage in Norway and cooler European temperatures will help underpin prices today. Initial resistance today is the 21-day moving average at $3.582and a big range higher trade yesterday, has de-escalated bearish sentiment present at last week’s low. Apparently, colder weather in the US has provided some short covering from last week’s net spec and fund short in natural gas of 50,929 contracts. In fact, colder US and European temperatures in the second half of November combined with ongoing record US LNG export flow has temporarily cleaned up what has been a very bearish supply and demand condition. This week’s Reuters survey expects a net draw of seven BCF from EIA storage later today with estimates yesterday pegging US exports at 14.1 bcf/day which is above the record posted last April. In conclusion, we think overtly bearish fundamentals have been tempered, but advise against paying up for longs close to $3.20 as opposed to buying in down at $3.03.
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