Written Commentary
CRUDE OIL
With the crude oil contract into the highs yesterday “looking past” the omicron variant infection surge, the trade continues its excessive focus on demand. Overnight, European crude in storage declined by 3.2% (according to a weekly report from Genscape) and there are reports that Iran is “dragging its feet” returning to the previously agreed to nuclear “deal”. Two-sided volatility unless EIA crude stocks fall and while that decline matched expectations the key take away is the likelihood of another material draw in weekly EIA crude stocks later this morning.
While the gasoline market has fallen back from yesterday’s new high for the move, favorable demand stories should provide fundamental support for prices today. In fact, Bloomberg produced two different stories overnight touting sustained improvement in driving activity despite the significant omicron infection surge. In a minor supportive supply-side development, the west coast winter storm has apparently shuttered or hindered refinery activity and that has propelled California retail prices sharply higher.
NATURAL GAS
Surprisingly, European cash gas prices continue to fall in the face of residual strength in US natural gas futures prices. However, European prices were obviously “extremely puffed up” because of near term tightness and some fear of shortages this winter. Holding back futures prices today are mild European and US weather conditions and perhaps reports that LNG ships have been diverted from Asia toward Europe.
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