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Natural Gas Prices Drive Lower

NATURAL GAS

Natural gas prices continuing to drive lower with such short-term oversold levels highlights a very confident bear camp. Obviously forecasts for mild temperatures give the bears confidence with the most likely source of a rally the result of shorts banking profits. This week’s Reuters poll projects EIA natural gas in storage to post a withdrawal within a range of 44 to 77 BCF. Likely the more significant bearish force comes from record US production. January natural gas started the week with a gap down trade on very high trading volume, however, and that could signal a potential bounce if macroeconomic optimism is seen following today’s US CPI results.

gas stove burning

CRUDE OIL

While energy markets were able to post moderate overnight gains, crude oil prices have fallen into negative territory this morning. There was a missile attack on a chemical tanker in the Red Sea which led to a mild flare-up of Middle East supply anxiety, which has dissipated. Funds continue to sell crude oil, clearly thumbing their nose at OPEC+ and their ability to keep the world supply and demand balance conducive to firm pricing. Evidence of soft energy demand came yesterday from lower Chinese November crude oil imports and Bloomberg comments that high-frequency data show activity in China have fallen below pre-Covid levels. On the other hand, the bull camp has expectations of a weekly decline of 1.5 million barrels in EIA crude oil stocks and evidence of a 1.9% strengthening of European refinery crude intake from the previous month. Some market participants think the US buying to refill its strategic petroleum reserve will support and perhaps lift prices, while we say strategic reserve buying is more of a psychological lift than a fundamental. In the end, like many physical commodities, petroleum markets will take significant direction from financial market developments over the upcoming 48 hours as the US released its latest inflation readings which should significantly influence market views toward the direction of global rates and the direction of the dollar.

 

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