Written Commentary
CRUDE OIL
Obviously, speculative fervor has been extended into another trading session, with speculation reaching beyond crude oil futures from interest in energy ETFs and leveraged energy related ETFs. In other words, bullish sentiment is escalating rapidly but the net spec and fund long is probably not “mostly bought out” yet despite the rally of $21.00. Another sign of frothy sentiment is the fact that implied volatilities (on at the money options) is between 70 and 85%.
While all 3 key EIA product inventory readings declined, the magnitude of the declines were insignificant and therefore not an impact on prices. On the other hand, the trade perceived demand readings to be upbeat and the upcoming spring break season could add to demand improvement signals. A moderating force of the bull trend is the fact that EIA gasoline stocks reversed a 10-million-barrel year-over-year deficit into a 2.5-million-barrel surplus. The bias is up, but the gasoline market is significantly short-term overbought and extremely vulnerable to any hint of a cease-fire (even a temporary cease-fire).
An oil pump jack
NATURAL GAS
While natural gas prices forged a higher high this morning, prices (per BTU output) remain at the cheapest levels ever versus petroleum prices and that should begin to increase power generating demand for gas. However, the market should also continue to draft support from cold weather forecasts for the US and Europe and from word that US export shipments are swelling. In fact, the US has now become the world’s largest LNG exporter.
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