Written Commentary
CRUDE OIL
The crude oil market starts out with a minimally positive tilt with a five-day high likely the result from strong near-term US holiday demand, but it is also possible that increased US surveillance of oil price cap violations is adding to the upward action. In fact, yesterday we think the crude oil market four-day high was heavily based on renewed efforts to limit the amount of illegally priced oil coming out of Russia. Apparently, the US Treasury Department has asked 30 different shipping managers to provide information on 100 vessels that are thought to be violating Western sanctions implemented to decrease Russia’s capacity to wage war. It is also possible that upcoming EU discussions on expanding sanctions against Russia helped the December crude contract reject trading below its 200-day moving average down at $76.71. Surprisingly, the crude oil market managed to post positive trade action yesterday despite news that the Iraqi oil minister was attempting to restart an oil pipeline closed for seven months by the Kurdistan regional government. In fact, Iraq has raised its output by 100,000 barrels per day above its OPEC production quota and could eventually increase its production by 500,000 barrels per day. While the Turkish government is reportedly in favor of restarting flow through the pipeline in question, that oil flow has been unreliable. From the demand side of the equation concerns for slackening energy demand are surfacing, with the IEA indicating Asian oil balances are not as tight as seen earlier this year.
NATURAL GAS
We are quite surprised by the rally in natural gas to start the new trading week, especially given the higher high trade this morning as classic supply and demand fundamentals remain patently bearish. In fact, reports that LNG in floating storage increased by 6.3% on a week over week basis combined with talk of a mild winter in China should thicken fundamental resistance in the natural gas market. An added negative for US prices is an outage at the Freeport export facility. In retrospect, thinking natural gas prices yesterday rallied because of more seasonable temperatures or because of a possible draw in weekly gas inventories is very suspect as heating degree days continue to run below normal, European prices started the week out soft and there were reports that China was selling previously purchased natural gas back to the market. Keep in mind that European strategic reserves are almost at capacity with officials very confident in their ability to meet winter demand needs.
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