Written Commentary
NATURAL GAS
While we suspect gains in natural gas off the recent lows are primarily year end profit taking by long dated short positions, recent reports that European storage levels dropped by 11% into the end of November clearly delivers a blow against the almost absolute bearish set up. This week’s Reuters poll projects EIA gas in storage to decline by 72 to 76 bcf with last week’s withdrawal much larger than expectations. Granted there are cooler temperature forecasts for Europe but that is heavily offset by above normal and in some cases record high temperatures in large sections of the US this week. However, there is a fresh speculative theme in the marketplace this morning suggesting higher European gas prices are the result of buyers positioning for an expansion of the conflict in the Middle East. Further short covering gains likely but so far there has not been a paradigm shift.
CRUDE OIL
The fundamental set up for crude oil is slightly improved from late last week with global equity markets tracking higher, Chinese economic data overnight positive and the US dollar weakening. Not surprisingly, concerns of supply disruptions from attacks in the Red Sea are at the forefront of market focus today but reports that Russia will reduce its see born oil exports by 100,000 to 200,000 barrels per day next month should provide a fresh measure of support for prices. However, limiting the bullish vibe in the marketplace today is a week over week rise of 14% in global crude oil in floating storage. Unfortunately for the bull camp, the potential for improved Chinese oil consumption looks to benefit Russia more than other oil producers as sales to China from Russia allow Russia to circumvent supply barriers from western sanctions. In fact, according to Bloomberg, half of Russian oil and product exports this year were destined for China with Russia also garnering 40% of the Indian oil import market. Due to the holiday, the weekly EIA reports will not be released until tomorrow but this week’s Reuters poll expects US crude oil inventories to decline by 2.6 million barrels and that could help February crude oil respect support today at $74.58.
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