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Crude Oil Prices Surging Higher

CRUDE OIL

With prices surging this morning the next wave higher appears to have started. An avalanche of public and private sanctions against Russia, credit and shipping uncertainty of Russian materials and favorable Chinese PMI data overnight gives the bull camp control from both supply and demand. An example of the difficulty of transactions involving Russia is seen with China’s coal purchases from Russia experiencing financing issues. Furthermore, the cost of shipping Russian oil increased by 300% from last week which certainly counters reports of heavy Russian discounts. However, Russia has indicated to the Crown Prince of Saudi Arabia that Russia intends to stick with the unwinding of production restraint but increased Russian export efforts might now be ineffective.

If April unleaded were to close at the early trade level, that would be a fresh contract high close. In the near term, fears that critical Russian product exports could be disrupted is ratcheted upward by reports of transaction difficulties with Russian energy exports. However, overnight the trade is expecting Chinese buyers to step in for Russian supplies, as the discount to world price levels explodes. While gasoline was unable to hold the initial sharp gains yesterday, the market should be underpinned today because of news from the EIA that US December gasoline demand jumped by nearly 14% versus November and from news that US exports of gasoline expanded.

NATURAL GAS

Clearly, the natural gas market performed very poorly to start the trading week, perhaps because of news that Russia might have booked some pipeline space on the Yamal to Europe pipeline. However, cooler temperatures in Europe should increase supply side anxiety as the West feels vulnerable to the weather. This week’s Reuters poll projects natural gas storage to see a draw of 91 BCF to as high as a 153 BCF withdrawal. While LNG on floating tankers was reportedly up by 9% for 20 days in a row that supply is likely by design as demand from Europe and Asia is expected to expand significantly.

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