Written Commentary
NATURAL GAS
Given the flow of fundamental headline news yesterday, the range up extension in natural gas futures is highly suspect. In fact, with prices generally positive again early today the market has continued to discount bearish news from an outage threat against US export flow and from news of a 4% increase in Russian pipeline gas exports to Europe this month. While US temperatures have cooled off considerably, forecasts have above normal temperatures returning quickly. Another bearish development is news that Russian liquefied gas production last month increased by 12.9%. Offsetting some of the negative supply developments is a halt in Iranian exports through Iraq connected pipelines. However, Russian gas production has apparently returned to “pre-sanction levels” which should be seen as a very bearish supply side development. Perhaps the rally in natural gas yesterday was the result of expiration of the March natural gas contract or was the result of the prospect of a reversal of the US natural gas export pause implemented by the US president. Granted long-term projections of rapid growth in global LNG demand from both China and Europe are longer-term bullish developments but should be so far into the future as to be unimportant in daily trade.
CRUDE OIL
In retrospect, we are very surprised crude prices have held this week’s gains in the face another large build in EIA crude oil stocks, a slight tempering of energy demand hope and to a lesser degree because of periodic strength in the Dollar. However, the bull camp should be emboldened this morning by Chinese government indications their 2024 oil consumption will increase by 0.3% and by ongoing gains in Chinese traffic. While not a definitive increase in demand, the Chinese remain a top-tier consumer and there has been more doubt on their economy than optimism already factored into oil prices. According to some sources, the energy markets have been undermined this week by fears of an upside breakout in US interest rates and the US dollar. Therefore, today’s US PCE and initial claims data should create volatility especially with open interest and trading volume falling off consistently in the face of the February rally. The bull camp needs a soft US PCE reading today with demand concerns fostered by recent weakness in the diesel market. Even the supply side of the equation favors the bear camp with US crude oil inventories at the highest level since late November and Cushing Oklahoma inventories jumping by the most since December 22nd.
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