Written Commentary
CRUDE OIL
While the energy markets were a clear laggard during Thursday’s “risk on” trade, they have benefited this morning from improvement in both the Chinese and global demand outlook. December crude oil was able to climb into positive territory yesterday after reaching a new 2-week low and has seen significant upside follow-through early today. China’s move to ease quarantine requirements for inbound travelers may be a small step but is a signal that their “Zero Covid” policy may be relaxed further. There were reports that officials have reinstituted Covid restrictions in the major city of Guangzhou this week, however, so the market may need more evidence of a shift in policy for energy markets to fully benefit. The latest EIA report showed US crude oil stocks reaching a 16-month high, which was seen as further evidence of lukewarm domestic demand which has weighed prices this week. However, a much lower than expected set of US CPI readings triggered a massive “risk on” rally across many market sectors, and that gave a boost to the energy demand outlook. The EIA’s latest Short-Term Energy Outlook report showed US crude oil production last month at 12.13 million barrels per day (bpd) which matched September for the highest production rate since March 2020. This will put added attention on the weekly Baker Hughes US oil rig count, as any uptick would put US rigs at their highest levels since March of 2020.
NATURAL GAS
In spite of volatile action over the past 4 sessions, natural gas prices remain within striking distance of a positive weekly result. December natural gas held within an inside-day range as it was able to finish Thursday with a sizable gain, but is finding mild pressure coming into this morning’s action. In addition to the rebound in risk appetites, natural gas benefited from a lower-than-expected weekly net injection of 79 bcf in the latest EIA weekly storage report. The latest 6 to 10 day forecast has below normal temperatures across most of the US, and that follows unseasonably cold temperatures seen across the upper Midwest and upper Plains states this week. This should result in a sharp increase in residential, industrial and power plant demand over the rest of November. There were reports that the Euro zone’s Bergermeer gas storage site has reached 100% capacity, while overall Dutch gas storage is at 92% of capacity. With the US likely to start drawing down natural gas supplies over the next few weeks, the market can see upside follow-through during today’s trading. Near-term support for December natural gas is at $6.060 while resistance is up at $6.400.
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