Evening Energy - More Consolidation Before a Solid Bottom is Established
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CRUDE COMPLEX
In the current condition the ebb and flow of energy demand expectations has become the all-encompassing focus of the crude oil trade. However, with sharp gains in infection rates throughout the world the threat against energy demand is becoming broad-based. However, this week's Reuters poll pegs EIA crude stocks to decline by 4 million barrels and that could give sellers pause. In fact, in the event of a decline in EIA crude oil stocks that would be the 4th week in a row of contracting supply which in turn could help February crude oil respect the $67.50 level as technical and fundamental support. There are other supportive developments for crude oil like the shutdown of a key Libyan oil field for the election ongoing evidence that OPEC plus members lack the capacity to raise output and solid signs of global fuel demand. In the end the crude oil market is likely to take significant direction from equities with dialogue between Russia and Ukraine a close 2nd. In the event today's EIA storage report show another decline in crude oil that could be an opportunity to get short!
On one hand the nearby gasoline contract thrust sharply lower but rejected more than half of that washout in a fashion that suggests traders were unwilling to press prices below $2.08. In general, the RBOB market has been presented with a slight downshift in demand views with activity systems pointing to less traffic congestion. It should be noted that there are reports pointing out moderate declines in retail gas prices which in turn could help to cushion US energy demand. In a potential countervailing force, refinery margins fell sharply which could deter if output in the coming weeks! Initial support in March gasoline is seen today at $2.0695, where as a reversal up would be seen with the trade above $2.1314. Not to be left out the diesel market also ranged down sharply but rejected that slide in managed to close back above the midpoint of the range. However, demand continues to be a major concern for the trade with jet fuel use only slowly expanding and the trade not getting recent evidence of a surge in truck diesel consumption. Critical support is seen at $2.15 into turn the trend up might require a rally back above $2.2217.
While there could be temporary bouts of holiday optimism in equities ahead which in turn could lead to gains in oil prices, we think infection counts leave control with the bear camp. However, the Russians appear to be laying political groundwork to attack Ukraine with the Russian president poised to make the incursion in full view of the world.
NATURAL GAS
On one hand, the natural gas market track near this week's lows as if a downside breakout was in the offing. However, the gas market clearly rejected that downward tilt perhaps because of a slightly cooler temperature forecast in slightly because of reports of potential disrupted supply flows from Norway. While some cooler weather is drifting into the Northwestern two thirds of the US out to December 27 a large portion of the US will encounter above normal temperatures leaving total domestic gas demand soft. From a technical perspective the natural gas contract yesterday avoided a fresh lower low and rejected the brunt of the selling into the close in a fashion that suggest $3.575 might be some form of value zone.
technical and fundamental measures favor the bear camp with the market hopeful of severe cold and hopeful that big picture macroeconomic selling will be avoided. Pushed into the market we leave the edge with the bear camp with significant resistance pegged at $3.870 and key support at $3.681.
