NATURAL GAS
With the December natural gas contract Wednesday trading within the large range up trade on Tuesday and ultimately finishing lower, the current cold snap has clearly failed to support prices. Adding to the bearish track is fresh evidence of rising US gas production with the latest EIA monthly report indicating August production increased by 3% over last year. While the EIA also indicates that the rig operating count has declined at a very rapid pace, that long-term supportive issue is shunted to the sidelines in the current environment. This week’s Reuters poll projects EIA gas in storage to increase by 80 BCF which we think would be bearish given the anticipated uptick in demand from colder temperatures. In fact, European gas prices came under pressure yesterday from slack demand but were reportedly supported by the Middle East conflict.
CRUDE OIL
Clearly the energy markets are not easily lifted by general improvement in global sentiment and from signs the US Fed upgraded the status of the US economy yesterday. Furthermore, energy prices have continued to falter despite ongoing fighting even though the IDF is nearing the heaviest populated area of Gaza city. However, press reports indicate Hamas was “well-prepared” and that Gaza city is the primary location of Hamas. While crude oil prices temporarily regained their footing yesterday off reports that Israel deployed ships with missiles to attack the rebels in Yemen, that news clearly did not rise to the level of igniting a noted rally. In a minimally longer-term bearish development, India has apparently directed refineries to process Venezuelan crude oil which in a sense is utilizing fresh supply previously locked off the market. While classic supply and demand fundamentals this week justify the slide two two-month lows, getting short near $80 per barrel could be punishing if Iran openly joins the fray.
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