Written Commentary
CRUDE OIL
While the paradigm shift from a historically aggressive rate hike policy to the prospects of rate cuts is a major assistance to energy demand and crude oil looks to break a chain of lower weekly trades with a gain this week, structural bearishness remains in place from classic fundamentals. In fact, this morning we see an avalanche of bearish energy market headlines with a Middle East crude sale of February oil priced at a discount, Chinese refiners cutting processing rates to nine-month lows, falling Marine fuel sales in Singapore, a prediction from McQuarrie bank of a global oil surplus next year and predictions that warm winter temperatures in the US, Europe and Japan could reduce heating fuel consumption by 700,000 barrels per day. While the contraction in EIA crude oil stocks this week and ongoing signs of positive product demand provided support to prices on Thursday, the large jump in prices this week was likely the result of short covering with an even larger portions sparked by fresh speculative macroeconomic buying from the improvement in global macroeconomic sentiment. However, the markets were also lifted by an upward revision in IEA world oil demand growth to a faster rate than was expected.
NATURAL GAS
Surprisingly, despite an ongoing wave of bearish headline developments, natural gas prices this morning have remained near the top of this week’s corrective bounce highs. However, mild forecasts have continued to extend, and analysts are beginning to forecast significant reductions in heating demand associated with a mild winter. In fact, J.P. Morgan overnight projected a warm winter would reduce heating fuel use by 700,000 barrels per day in the US, Japan, and Europe. Not surprisingly, the natural gas market was one of the few physical commodity markets unable to find any lift from the newfound macroeconomic optimism this week. Other bearish issues are confirmation of continued flow of Russian gas through Ukraine at preestablished levels and a forecast that El Nino conditions in North America will last through the upcoming winter.
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