Written Commentary
CRUDE OIL
With the March crude oil contract rejecting early weakness and returning to the vicinity of the January highs, the trade continues to embrace strong 2023 Chinese energy demand growth. While overnight analyst projections signal Chinese demand growth to be much more significant than Indian energy demand growth, the Indian economy is relatively stronger than all other major economies and the country has significantly boosted recent energy imports. Overnight an analyst on Bloomberg acknowledged strong 2022 Indian demand, but the IEA expects China to lead the way this year with “growth” in energy demand of 854,000 barrels per day. Therefore, forward strength in oil prices and a moderate measure of the January gains are heavily dependent on consistent improvement in Chinese energy demand especially with the Chinese economy encountering a major junction following massive infections. While the US has pressured China to stop or reduce oil purchases from Iran, Chinese government oil companies will likely continue to buy supply at the best price. Obviously, the crude oil market has lost the leadership role to the products markets and that is justified by 3 straight weeks of very significant buildup in EIA crude oil stocks and the expansive of year-over-year deficits in key product supplies. The path of least resistance is up in crude oil, but the March contract yesterday saw the lowest trading volume of the month and the potential for negative headlines from China remains high into next week.
NATURAL GAS
The most positive factor supporting natural gas prices is the market’s recent attempt to respect and consolidate above the $3.00 level. Surprisingly, the March contract held above $3.00 yesterday despite news that US heating degree days last week were 44-degree days below normal. Furthermore, upcoming temperature forecasts are expected to shift to milder readings after recent cold weather particularly in portions of the UK. Yet another fresh bearish overnight development is press coverage suggesting the EU has been “incredibly successful with conservation measures. We suspect that a Chinese natural gas output jump of 6.5% in December (from year earlier figures) is a limiting force for prices early today.
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