Written Commentary
NATURAL GAS
News that US exports to Europe will continue to increase from attempts to fight CO2 pollution is totally offset by headlines overnight indicating record prewinter European inventories are in place. In fact, European gas prices should continue to be “more vulnerable” than US gas prices considering the massive premium injected into those prices over the last year. However, temperatures in Europe look to dip but that is offset by a warmer trend in the US. If there has been a surprise in the natural gas market over the last three weeks, it is the market’s ability to avoid a significant downside washout. Nonetheless, supply remains burdensome with China joining the list of countries indicating their strategic reserve supplies are enough to offset winter cold. While not a near-term negative, Ukraine indicated they will expand their natural gas production which reduces their reliance on Russia. Despite slightly positive supply and demand projections for 2023 in the November EIA short term outlook update, the bear camp retains firm control.
CRUDE OIL
The path of least resistance remains down in crude oil with the war not throwing off fresh supply threatening bullish news and most importantly news of a massive single week API crude oil inventory inflow of 11.9 million barrels. Other negative supply news from yesterday included a rise in Cushing Oklahoma crude stockpiles of 1.9 million barrels last week. Fortunately for the bull camp macroeconomic conditions are mixed to slightly positive with expectations of dovish Fed dialogue throughout the session today or December crude oil could plummet below $75.00. With the EIA not releasing its scheduled weekly data due to a systems upgrade, this week’s Reuters poll projecting crude stocks to decline by only 300,000 barrels is discounted especially after the surprisingly large and bearish API crude stocks release yesterday afternoon. Even demand forces in the market are bearish with the trade interpreting Chinese trade data yesterday as a sign of ongoing economic trouble. The negative Chinese demand outlook is accentuated by overnight predictions that Chinese oil demand is worsening even with winter approaching.
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