Written Commentary
NATURAL GAS
Despite US heating degree days running well below normal, a generally small range of expectations for this week’s storage draw, and a stronger dollar, natural gas prices have extended the recent pattern of higher lows. On the other hand, Higher Asian LNG spot prices overnight, record US exports and talk of strong winter storage building by China, Japan, and South Korea which should keep the bull camp happy. This week’s Reuters poll projects EIA natural gas in storage to decline within a range of 51 to 17 BCF and in our opinion that is a very bearish range. The relatively modest decline expected in EIA natural gas in storage is especially bearish when combined with Bloomberg reporting US heating degree days to be 54 heating degree days below normal last week. In addition to cold weather in the US, the trade is increasingly embracing record US exports with the US December export reading a new record and a “fresh reading”. The path of least resistance is up but the fundamental argument is somewhat suspect with US supplies holding at a significant surplus to five-year average storage levels for this time of the year.
CRUDE OIL
With the crude oil market this morning forging a lower low in the face of reports the Chinese have resumed buying for storage and falling in the face of a poll from Reuters predicting a 3-million-barrel decline in weekly EIA crude oil stocks the bear camp has control. Adding into the bear control is another record US crude oil output reading from October (which is dated) with the largest production area Texas production gain more than offsetting lower production from US Gulf of Mexico and North Dakota production areas. However, October readings are dated, and the Middle East situation keeps a supply threat in place. Tensions are heightened following the elimination of the Hamas second in command in Lebanon by the Israelis. While a direct confrontation between the US and Iranian navies is unlikely, an exchange of fire is likely to result in a sinking of the Iranian vessel which in turn would dramatically escalate the threat against supply. While not a major impact on prices, big picture macroeconomic conclusions could be formed today following the kickoff of the US monthly jobs report cycle and perhaps more significantly from the afternoon release of the last Fed open market committee meeting minutes. In other words, if the prospect of a first quarter US rate cut is pushed back the dollar should firm further and macroeconomic sentiment should sag and in turn bring down energy demand expectations. However, Asian Pacific floating storage fell by 32% over the last week and now stands at only 33.3 million barrels. Issues that should hold back energy prices is word that Indian crude oil imports from Russia fell in December to their lowest level since January 2023 and news that November Indian overall crude oil imports overall declined by 2.3% on a year-over-year basis.
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