CRUDE OIL
Both supply and demand signals are bearish for crude oil with global slowing evidence flowing in the headlines again overnight and the US Fed likely to acknowledge slowing in the US economy. Furthermore, Chinese energy demand expectations suffered a blow overnight with Chinese new loans for October coming in much softer than expected. As if negative demand news was not enough for the bear camp to control prices, expectations for intermediate global supply rebuilding adds to the downward track. Issues likely to cause a rebuilding of global inventories are a very strong pattern of US production, the potential for a backup of US export supply from several US Gulf of Mexico undersea pipeline shutdowns and the presence of a 31-million-barrel year-over-year EIA crude oil surplus. US crude oil refinery throughput has been above 16 million bpd for the past 2 weeks, and another reading at or above that level would reflect some improvement in short term demand. On the other hand, another reading registering a jump in crude oil imports above 7 million bpd could weigh on energy market prices. Therefore, the market should derive minimal support from yesterday’s 2.34-million-barrel API inventory decline, from a missile attack on a Norwegian vessel carrying oil products and from the potential of a slide in the US dollar. Therefore, it is critical that today’s EIA supply report provides additional bullish results following the API stocks decline yesterday or January crude oil is likely to continue its track toward June lows.
NATURAL GAS
It is getting monotonous describing the bearish condition in the natural gas market with mild temperatures and frequent record US production readings leaving the bear camp very confident. In fact, an extension of mild temperatures into the end of the month dramatically increases the likelihood that extreme cold will not manage to turn the trend around. While the massive and brutal downward track in prices looks and feels dramatically oversold in classic technical terms, the last COT positioning report pegged the net spec and fund short at only 89,918 contracts which is 50,000 contracts below the largest net spec and fund short of 2023. In other words, the natural gas market continues to hold speculative selling capacity. On the other hand, the downside washout has pushed open interest up to a massive 1.4 million contracts suggesting the bear camp is clearly piling on quickly. The latest 6-to-10-day forecast has above normal temperatures across a wide portion of the continental US, and that will cut back on power plants and heating demand for natural gas over that timeframe. US dry gas production remains close to record high levels this month, and that has kept the natural gas market on the defensive this week. The EIA reduced their 2023 and 2024 US dry gas production forecasts, but this year and next year are both expected to come in above 103 bcf per day which are the two highest years on record.
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