Written Commentary
NATURAL GAS
After finishing last week with choppy two-sided action, natural gas broke out to the downside and reached a 1 1/2 week low before finishing Monday with a sizable loss. The latest 6 to 10 day and 8-to-14-day forecasts have near normal temperatures across large portions of the continental US which will reduce power plant demand for natural gas. At the same time, US dry gas production is expected to reach record highs above 104 bcf per day, which weighs on natural gas prices. While exports to Canada and Mexico may see a mild uptick, that will be offset by a moderate drop in US LNG exports over the next few weeks. European gas is at very high levels for this time of the year, which has been another source of pressure. The bears continue to have the upper hand in natural gas as mild temperatures and increasing supply continue to weigh on prices. Until there is a cooler shift in US weather, natural gas prices may have trouble finding their footing.
CRUDE OIL
With the US product markets showing divergent price action on Monday, and RBOB gaining the upper hand on ULSD that suggest a reversal of recent action and a possible compacted slide in product prices. While today’s US data might signal softening economic activity and the prospect of softening gasoline demand, average US retail “pump” prices for regular unleaded gasoline have fallen 25 cents a gallon since the start of October which could be supportive or could reflect subdued seasonal driving demand. Another negative facing the gasoline market today is the potential for a softening of US sanctions of the Venezuelan oil industry as Venezuela is a noted gasoline exporter. Even though this week’s Reuters poll projects gasoline stocks to decline by 1.6 million barrels, the gasoline market retains a significant surplus to year ago levels and might continue to benefit from what might be a reversal of long diesel, short gasoline spread positions.
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