Eying an opportunity to stick it to Vladimir Putin, hawkish Republicans, and Democrats from energy-rich states are pushing the administration to loosen exports of natural gas for shipment to Ukraine and other countries dependent on Russia. Currently exports of natural gas are limited to countries that are free trade partners with U.S., but lawmakers see an opportunity for domestic energy producers to benefit, as well as put pressure on Russia.
Natural gas had an extreme run-up recently as cold weather boosted demand, however the commodity has cooled off in the last couple weeks. David Lutz of Stifel Nicolaus has been following the trade for years, and despite arguably bullish talk coming out from Washington recently, he doesn’t see the clean burning fuel taking off in the short term. “We’re starting to see as we move closer and closer towards the spring” that nat gas is weakening price-wise, he says in the attached video. “Nat gas [was] down for the month of February, lost 30% in the past week, and the reason why? They’ve shifted from March deliveries to April deliveries.”
Things aren’t much better for crude oil, another pillar of the energy complex that he sees as weakening. “We have another systemic issue going on here,” he says. A draw in inventory at Cushing, OK has “caused prices to spike higher in the near term,” but he thinks upward pressure in prices will unwind itself, especially when it gets warmer out and demand for products like heating oil disappear.
Another knock for crude oil is that it’s a crowded trade. “The street is very, very long oil contracts," he notes, as the CFTC ‘Commitment of Traders’ data showed "speculators are more bullish on oil than they have been in the last 5 years.” Lutz sees this as a contrarian indicator.
“When the crowd is so centered in one direction, that trade rarely works out as anticipated.”
More from Breakout:
Merrill Lynch is not responsible for the editorial content of this blog
- Oil, Gas, & Consumable Fuels
- Commodity Markets
- Vladimir Putin
- natural gas