Written Commentary
CRUDE OIL
With signs of rising global crude oil supply, a major outflow from Brent ETFs, technical recessions declared in the UK and euro zone and nearly 20% of US refinery operating capacity idled the February rally has not be fully extracted yet. On the other hand, this week the markets saw significant year-over-year expansion of road traffic in China during their holiday week, Indian fuel sales jumped, Commerzbank has suggested recent IEA world oil supply projections were “too optimistic” and the bull camp is hopeful that today’s US PPI report will add to the improving energy demand theme from sustained strength in global equity markets. While it is possible the energy markets were lifted yesterday by soft US scheduled data which in turn rekindled a measure of rate cut hope which in turn undermined the Dollar, we think the rally was attributable to a threat against Nigerian oil exports. With the Nigerian currency falling to all-time lows and the Nigerian central bank moving to implement limits on oil-related currency transactions, it is possible that Nigerian crude oil and some product exports could be reduced. Another potential capable of crimping Nigerian exports flow would be a desire by Nigerian oil companies to avoid capital losses from a plunging domestic currency by holding on to their crude supply. In retrospect, this week’s supply data has been bearish with increases in global crude in floating storage and from a noted jump in Russian crude flows.
NATURAL GAS
With this week’s storage report showing a withdrawal at the bottom end of the range of expectations from the Reuters poll, mild US and European temperatures extending into the future and surprising weakness in Asian and European LNG prices earlier this week, the bear camp retains control. In fact, it should also be noted that the US inventory surplus to five-year average storage levels exploded to nearly 16% above the five-year average making it very unlikely US supply will tighten enough to reverse the downtrend in prices. The weekly EIA natural gas storage report showed a draw of 49 bcf. Total storage stands at 2,535 bcf or 15.9% above the 5-year average. Unfortunately for the bull camp, signs of strong Indian LNG imports are unlikely to change the market view that supply will continue to overwhelm demand.
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