Written Commentary
CRUDE OIL
While the crude market seems to have changed its opinion from yesterday’s impressive range up rally and risk off might keep a lid on many commodity prices today, we would not discount the potential of a significant range up move because of Russian issues. On one hand, the Russian central bank has raised interest rates 7 times this year to battle surging inflation and to dampen energy inspired inflation probably requires holding back energy exports. In fact, Russia’s crude oil exports and transit flows are expected to fall by 1.7% in the first quarter next year (relative to the 4th quarter of this year) and there is a distinct possibility that Russian oil exports could be disrupted because of economic sanctions.
In addition to slightly negative macroeconomic vibes early today, the product markets are likely to be hindered by evidence that Chinese November gasoline and diesel output/inventories increased significantly. However, the markets overnight noted Asian refinery buying following a slight dip in prompt/cash premiums.
NATURAL GAS
Obviously, the charts in the natural gas market this morning have shifted definitively negative, with the lowest price since late June posted early on. Part of the initial failure today is the result of Russian predictions that the North Stream 2 pipeline will begin exports next month. Furthermore, German officials have indicated that the security of supply in the country is guaranteed even if storage levels are below year ago supply.
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