Written Commentary
NATURAL GAS
Overnight news distinctly favors the bear camp with reports of record LNG floating storage mostly located in prime demand areas of Asia and Europe. As we have indicated over the last several sessions, last week’s natural gas rally was highly suspicious as temperatures were not unseasonably cool, the surplus to the five-year average EIA working gas in storage increased last week, the net spec and fund short remains very modest and a chorus of nations indicating they are secure with strategic supply for the entire upcoming winter. However, European gas prices could derive some support incoming cold but cold in early November is not a major impact especially with capacity storage. This week’s Reuters poll projects US natural gas inventories to decline by 7 bcf which suggests the end of the injection season is near or here. However, the surplus to the five-year average inventory looks to end the injection season around 6% which is down considerably from the maximum surplus this year of 24%, but still represents burdensome supply. In the near-term, it will be difficult to offset weekly evidence of record US gas production especially with US temperatures mild for the season.
CRUDE OIL
While the crude oil market has not posted a lower low early today the charts remain bearish, and the macro fundamental condition minimally improved. However, global energy demand expectations remain guarded with the latest inflation readings from China depicting a struggling economy. In fact, US gasoline pump prices have dropped for 41 consecutive days and that should indirectly assist the Bears in crude oil. In our opinion, the supply condition in crude oil is a more negative impact than slackening demand fears given this week’s massive 11.9-million-barrel inflow to API crude oil stocks and given a large Cushing Oklahoma storage inflow. Furthermore, the markets have discounted several bullish fundamental developments recently with a reduction in Russian production this month of 300,000 barrels per day, a projected decline in Russian western port exports of 2 million barrels per day this month, Saudi suggestions the washout is result of speculative selling not a shift in supply and demand and very strong Chinese crude oil imports from earlier in the week totally discounted. A very minor bullish development discounted by the trade this week are indications from the EIA that increasing Venezuelan production will take longer than expected and will need significant foreign investment.
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