Written Commentary
NATURAL GAS
With the range up move overnight extending the December rally, the bull camp is garnering respect from the trade. While it is possible that events in the Middle East could disrupt global LNG flows, the largest Russian oil company yesterday indicated they had achieved a record daily gas pipeline flow to China and that probably offsets a portion of the Middle East supply threat. However, it should be noted that a Libyan oilfield was shut down yesterday because of protests with Libyan gas flow to Europe representing a very large percentage of supply for Europe. Therefore, the Libyan oilfield shutdown impact is not to be discounted. On the other hand, some of the strength in prices over the last 24 hours is attributable to colder temperatures and to a lesser degree from projections of increased power use in Vietnam during the upcoming dry season.
CRUDE OIL
Apparently, the fear of a global oil supply glut has been discounted this week with crude oil prices rising in the face of a plethora of bearish annual price forecasts. Unfortunately for the bull camp, crude oil storage in the ARA last week was unchanged and the markets will be presented with significant signals on the direction of US energy demand from an avalanche of US jobs related reports in the coming 36 hours. Furthermore, it is possible that the EIA report today will yield further evidence of record US production which should revive the global supply glut theme and possibly stem the 24-hour recovery bounce of $3.60 in March crude oil. Unfortunately for the bear camp in the energy markets yesterday, an early washout was largely rejected perhaps because of intensified attacks on merchant ships in the Middle East but also because of an upward revision in estimates for the decline in EIA crude oil stocks today. Initial poll figures from Reuters pegged the EIA crude oil stocks decline at 2 million barrels with the latest poll predicting a decline of 3.7 million barrels. However, the bull camp is not without additional ammunition as OPEC crude oil output in December fell by 40,000 barrels per day and two Libyan oilfields have halted production this week because of protests. Furthermore, the API survey yesterday afternoon said that US crude oil stocks fell by 7.418 million barrels which was a much larger decline than trade forecasts. Other fresh supportive developments are news of an OPEC+ meeting on February 1st, and ongoing US strategic supply buying. In the end, we think yesterday’s rally was a bit overstated, but we also realize concerning developments in the Middle East seem to be picking up in frequency and with the killing of the second in command of Hamas in Lebanon earlier this week, and the Iranian naval ship moving into the Red Sea, there are many incendiary potentials.
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