Written Commentary
NATURAL GAS
Unfortunately for the bull camp, rejections of new contract lows have not yet signaled a bottom in the natural gas market. In a minimally bearish overnight development LNG on floating storage increased by 0.7% last week continuing pattern of rising inventory levels. Bearishness toward natural gas is not limited to the US futures contracts as European gas prices also continue to fall on soft demand especially following Bloomberg estimates that European gas usage in 2023 will see a contraction of 6%/7%. Furthermore, overnight estimates suggest that European gas storage levels will make it to the end of the winter season with just under half of capacity remaining in place. Natural gas company shares saw pressure yesterday because of mild European and US temperatures. This week’s Reuters poll projects EIA natural gas in storage to decline by nine to 31 bcf in the Thursday report which indicates the withdrawal season is underway. While the net spec and fund short has started to rebuild again, the magnitude of the net short remains significantly below levels we would consider oversold.
CRUDE OIL
The crude oil market is likely to post narrow ranges until the OPEC+ meeting on Thursday is complete with the outcome of that meeting potentially a major junction for a sentiment pivot. In other words, a simple extension of current production restraint levels will likely be seen as bearish even if the meeting produces promises of compliance by over producing African countries. In fact, some analysts are expecting deeper cuts but if that view were widely held that would have supported prices against this week’s general downward bias. The trade might see a slight psychological negative impact from the beginning of COP28 climate talks as fossil fuels are likely to encounter a barrage of policy initiatives seeking to reduce global fossil fuel consumption. Obviously, an extension of the Gaza ceasefire by two days discourages speculative buyers as the prospect of a broadening of tensions continues to decline.
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