Sharp Reversal in Crude
The sharp reversal in crude oil this week is not surprising considering escalating global recession fears which in turn ratchet up demand destruction prospects. However, escalation of the war also increases the potential of Russia shutting down another avenue of energy supply flow. While not a significant development on its own and perhaps attributable to other benign forces the diversion of a Russian crude oil tanker from Malta to Bangladesh could be a signal from Putin who could become increasingly unpredictable if the war has truly turned against him. Adding into the softening energy demand storyline this morning are reports of a flare of Chinese Covid infections which are magnified because of hopes of opening-up after the holidays. December crude oil started the week with early strength but turned back to the downside as it finished Monday’s trading session with a sizable loss and a very negative daily chart reversal. News that crude oil in floating storage declined by more than 6% last week fails to discourage macro sellers, even though Russian missile strikes in Ukraine underscore the threat that Russia could cut their export flow by 3 million barrels per day (bpd) as threatened.
Natural gas prices appeared to have finally found some support from the charts, but near-record US production and restricted US LNG exports provide a thick cap over prices. In today’s action a slide to consolidation lows is likely considering rising recession odds, a 13% jump in floating LNG supply, a mild/warm forecast for Northwest Europe, a lack of threatening tropical waves and spillover pressure from petroleum markets. The prospect of an extended shutdown of Russian gas flow to western Europe underpins natural gas prices after missile strikes in many Ukraine cities. Looking ahead another “triple-digit” net injection for this week and next week’s EIA storage reports are likely to pressure prices later this week.
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