CRUDE OIL
With a poor early trade today, the bias in the crude oil market looks to remain down with a test of the $72.50 level likely in the days ahead. However, crude oil in floating storage last week declined by 2.9% with sharp declines seen in Europe and minimal declines seen in the Asian Pacific region and that should help cushion the market against residual energy demand fear selling. The bull camp is undermined while the bear camp is emboldened by signs of turmoil within OPEC+ following the postponement/delay of their meeting scheduled for this past weekend. Apparently, part of the rift among the cartel is the result of South African compliance with oil quotas but Bloomberg indicates some progress on that conflict has been made. The term structure of the Brent crude oil market continues to hover in contango partially because of an emerging pattern of rebuilding US crude oil inventories especially with US inventories building 28 million barrels in just five weeks. While there are forecasts of colder weather in Europe to start the month of December, a temporary disruption of black Sea terminal activity because of a storm and general expectations OPEC+ will extend their production restraint, the bull items do not appear to have the capacity to prevent a return to the November low down at $72.37. The OPEC+ meeting was delayed until Thursday because of debate among members regarding compliance by South African producers.
NATURAL GAS
Despite talk of a cold start to the month of December, Asian gas prices finding support at $16.00 and the EIA weekly withdrawal week, the gas market has posted another contract low. However, even though colder weather has not threatened the bear camp yet, the net spec and fund short should be rebuilt quickly, setting up the potential for a key bottom in the coming weeks. However, exports of US LNG are experiencing backlogs because of low Panama water levels and with the US working gas in storage starting the heating season at a 7% surplus to five-year average storage levels, the bear camp clearly has oversupply entrenched in its side of the equation.
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