NATURAL GAS
Natural gas prices were able to grind out a mild gain on Tuesday, but a sizable pullback from their morning highs did not bode well for today’s action as they are finding mild pressure early this morning. There has been an uptick in heating demand expectations for next week which provided some measure support to the market, while a modest pullback in US gas production this week has also underpinned prices. There are forecasts for a “triple-digit” weekly draw in tomorrow’s EIA report, but US storage should stay above the 5-year average which will limit near-term upside in natural gas prices. Pipeline exports to Mexico are expected to increase over the next few weeks, but LNG exports have reached a plateau just above the 14 bcf per day level. Until there are much colder temperatures that can ramp up heating and power plant demand, ample near-term supply will continue to weigh on natural gas prices with January natural gas finding support and the next downside target at the $2.650 level.
CRUDE OIL
With a lower low to start today, economic sentiment eroding, fears of a higher dollar and, most importantly, ongoing expectations of eroding global energy demand, more downside action is expected. In fact, short-term technical indicators remain in sell mode and are not yet overdone! Apparently, Chinese refiners have slowed their run rates because of poor profit margins and from deterioration in the Chinese economy from constant negative headlines from the Chinese housing sector and the Moody’s downgrade of Chinese debt. Furthermore, Chinese energy demand expectations are being undermined by consistent declines in Chinese markets. The bear camp should be emboldened by a small increase in API crude stocks reported yesterday afternoon compared to Reuters estimates for the EIA report today calling for stocks to drop by 2.3 million barrels. In a negative supply side development overnight, deliveries of crude oil against the Dubai November crude contract are at the highest level in over five years, which likely offsets demand for Brent and WTI supply but could also be a sign of decent demand in Southeast Asia. In the end, with the crude oil market posting a fresh downside breakout the bear camp remains in control with both supply and demand developments leaning in its favor. In fact, in a sign of softening demand, Saudi Arabia has apparently cut their January crude oil prices for their Asian customers. Unfortunately for the bull camp, the US JOLTS survey showed the lowest jobs openings since March 2021 thereby giving credence to the idea of slowing energy demand. In another sign of bearish sentiment, the trade has not embraced Russia’s Deputy Prime Minister Novak comments that the OPEC+ nations could strengthen their output cuts during the first quarter of 2024. After the close, the API survey said that US crude oil stocks had a weekly increase of 594,000 barrels which contrasted with trade forecasts for a moderate weekly decline. If today’s EIA supply is in line with the build seen in the API report, that would lift US crude oil stocks above 450 million barrels for the first time since late July. Last week’s EIA report showed US crude oil refinery throughput climbing back above the 16 million bpd level, and another reading at or above that level could help to soothe near-term demand concerns. On the other hand, last week’s report also showed US crude oil imports below the 6 million bpd level, and another sub-6 mbpd reading could ramp up demand concerns. In addition, crude oils stocks at the Cushing, Oklahoma hub have been on the rise, and another sizable weekly build could pressure the market.
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