Art Berman
The range of WTI over-pricing moved down from $16.50-$20.50 last week to $12.50-$17.50 this week.
The collapse in gas prices still appears to have found a temporary bottom at about $2.40 as prices have moved back to the 20-day average for the first time since December 2022.
Everything about fundamentals indicates that WTI is $16.00-$20.00 over-priced.
If financial success were as simple as the memes that often guide investors, everyone would be rich.
I expect another week of warmer-than-normal weather and weak natural gas storage withdrawals.
Comparative inventory increased the most since early April 2020 and is now more than the 5-year average.
The market has re-priced natural gas to a yield curve with about a $1.00 lower mid-cycle price than has described price-volume relationships since the Ukraine invasion.
There is an aggressive ~$11.00 premium included in WTI pricing despite generally bearish fundamentals.
It is tempting to assume that inadequate investment will lead to much higher oil prices. But what if demand follows supply lower as it did during the last five oil-price shocks from 1974 to 2020?
Markets continue to discount gas as the price fell below $2.50 for the first time since early April 2021. Forecasts suggest normal to warmer-than-normal temperatures through the middle of February.
There are no bullish fundamentals for oil. WTI is in contango. Inventories are approaching the 5-yr avg. Futures are below the 100- & the 50-day avgs. C.I. indicates WTI is at least $7.50 over-priced.
Forecasts suggest a cooler early February so I expect prices to increase somewhat. I suspect that price will remain discounted by at least 10% below the implied clearing price of $3.80.