Written Commentary
NATURAL GAS
With the plot thickening on who damaged the Baltic Sea pipeline and Russia threatening a massive 3 million barrel per day reduction in petroleum output, the threat of less gas flow into Europe remains high. Furthermore, the need for heating fuel is beginning to materialize and the spec and fund position remains low and that should moderate downside action and potentially magnify moves above key chart levels. Natural Gas positioning in the Commitments of Traders for the week ending October 4th showed Managed Money traders were net short 98,758 contracts after increasing their already short position by 6,439 contracts. Non-Commercial & Non-Reportable traders added 4,909 contracts to their already short position and are now net short 126,610. In a minimal negative (as flows are not markedly changed) Russia’s gas pipeline flow Sunday was unchanged at 42,4 mcm.
CRUDE OIL
While the massive recovery rally off the September lows in crude oil might be overdone, into the lows last month, the trade was presented with a series of significant global surplus forecasts. Contrast that with current expectations of a supply deficit for the current quarter (from OPEC+ production cuts), escalating uncertainty from Russian actions and signs of strength in the US economy and bullish sentiment is justified in lifting prices sharply. Along those lines Bloomberg overnight pegged crude oil in floating storage to have declined by 6.3% over the prior week with significant declines in Asian Pacific locations. While the crude oil market might be overdoing the 2 million barrel per day OPEC+ production cut, the addition of a Russian oil minister threat of removing 3 million barrels per day sets in motion a potential major supply shortfall. In retrospect, tensions between Russia and the rest of the world will continue to worsen, as the EU/US pushes for fresh embargo/price Cap policies. The damage to critical gas pipelines in the Baltic Sea remains a hot topic with a US Navy plane reportedly in the area (never closer than 15 miles) and a final track in the plane toward Kaliningrad.
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