Written Commentary
CRUDE OIL
The downward track on the crude oil charts has extended again today with the trade seemingly embracing a softening demand theme. In other words, the energy trade has temporarily shifted its focus from Indian and Chinese demand prospects to global demand prospects with the prospects of surging interest rates rekindling recession fear. Sentiment is so bearish this morning that prices have remained lower despite overnight news that OPEC+ was likely to stick with its production restraint agreement despite reports earlier this week that the UAE might leave the cartel. Apparently, the energy trade is so concerned about rising US interest rates it discounted Bloomberg news overnight of a 2-million-barrel purchase of US crude from Chinese oil giant Unipec.
PRODUCT MARKETS
Even though soft Chinese January/February oil import readings have undermined demand expectations; Chinese leadership is expected to begin to reduce fuel exports as domestic demand for fuel recovers. Apparently, analysts think the reduction in Chinese fuel exports will be quick and aggressive which some suggest is another sign of the Chinese economy gaining pace. While the weekly ARA inventory report showed declines in gas oil, gasoline, and jet fuel, fuel oil and naphtha stocks increased. It should also be noted that European gasoline/naphtha crack margins declined in a possible sign of softening demand.
NATURAL GAS
Not surprisingly, the weekly gasoline storage report from the EIA failed to show typical winter withdrawals and in turn resulted in a significant expansion of the current storage surplus level to 5-year average storage levels. The weekly natural gas storage report showed a draw of 84 bcf. Total storage stands at 2,030 bcf or 21.5% above the 5-year average. Over the last four weeks natural gas storage has declined 336 bcf. It should also be noted that European financial press outlets today have declared success in the battle to avoid a winter energy crisis. Certainly, natural gas prices this week have found support at the $2.50 consolidation support level likely because of bouts of cold weather in both the US and Europe.
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