Written Commentary
NATURAL GAS
Noted strength in US gas futures prices this morning is very surprising in the face of news that China is “reselling” cargoes and with European gas prices falling because of oversupply. However, there is talk of improved demand from slightly cooler temperatures US and European, but we are highly critical of that bullish theme. While some cooler temperatures could lend support to prices, in our opinion it will take a much colder than normal pattern to arrest the slide in prices. In fact, the Russian national gas company continues to ship steady gas levels through Ukraine and the market showed no response to the threat of potential new UK sanctions on Russian gas companies and certain Russian oligarchs.
CRUDE OIL
Despite a lack of definitive risk on mentality flowing from global equity market action overnight, December crude oil has tracked higher early today with market attempting to respect the 200-day moving average at $76.70. Supporting prices internally is news that weekly oil in global floating storage declined by 26% last week, with storage seemingly falling in all key regions measured. Asia-Pacific supply was down sharply with West African storage down 35%. However, on the demand side of the equation, the trade generally fears softening US and Chinese demand which coincides with recent soft data from both countries. While not at the forefront of energy traders’ focus today, the potential for a US government shutdown and wild volatility in financial markets could deflate energy demand expectations later this week. Over the weekend, there were signs of softening Asian prices from softer demand, but that influence could be offset by WTI backwardation shifting to contango at the end of last week. Critical economic data ahead contains producer and consumer price inflation readings from several countries which could add to or detract from recent hawkish US central bank views. As in many physical commodity markets, gyrations in the dollar and interest rates this week are likely to dominate over internal energy market fundamentals. In fact, without additional direct military support from a third-party, the bias of petroleum looks to point to the downside with gains likely to be temporary technically motivated events.
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