Bostic less caustic and China reopening signs and what may be the last week for US SPR releases, states Phil Flynn of PRICE Futures Group.

Those three ingredients for oil are easing concerns of oversupply even with warmer-than-normal temperatures in the US and Europe and instead point to an undersupplied market when we get deep into winter. The US also is turning down oil for SPR buybacks and the Fed maybe show less panic about inflation as it sets the stage for risk on Monday.

Atlanta Fed President Raphael Bostic was less caustic, sounding less hawkish on Friday than he did on Thursday after he said, “if the labor market continues to ease, I would be content with a 25-basis point move in February. Those comments were a little less hawkish than his comments the day before when he suggested that the biggest threat to the US economy was inflation and that the Fed wasn’t nearly finished with trying to beat inflation even if it meant causing a recession. Yet now he seems to be a little less panicky about inflation perhaps because of the data that came out on Friday like the ISM Business Activity Index at 54.7%; New Orders Index at 45.2%; Employment Index at 49.8%; Supplier Deliveries Index at 48.5%. Or the Jobs report showed that nonfarm payrolls rose by 223,000 jobs in December and a 0.3% rise in average earnings which was smaller than expected and less than the previous 0.4%. Maybe it is time for Fed officials to stay quiet and let the market figure things out.

One of the bear cases has been skepticism about China’s reopening. The thought by oil bears was that rising Covid cases in China would reverse the opening. Yet in what may be a case for herd immunity, Reuters reports that “As part of a “new phase” in the fight against Covid-19, China opened its borders over the weekend for the first time in three years. Domestically, about two billion trips are expected during the Lunar New Year season, nearly double last year’s and 70% of 2019 levels, Beijing says.  

In case you were wondering, Chinese New Year is 13 days away on Sunday, January 22 and it is the year of the Tiger. With China’s reopening, there will be a lot more celebrations than we’ve seen in a couple of years in China. While some factories shut down for the Chinese New Year, the odds are very strong that the oil demand expectations will continue to rise.

How is that electric car thing going for you? The Biden administration seems to believe that electric cars are our future. Many of the green energy advocates in electric car aficionados point to places like Switzerland as an example of what the United States should be doing when it comes to replacing the internal combustion engine. Yet Yahoo News reports that “the energy crisis may force drivers in the ‘best country in the world to ‘think twice’ about electric vehicles. They say that electric vehicles have become popular over the past few years. But EVs could take a significant hit based on what’s happening in Switzerland.

According to a report in the Telegraph in December, the country is weighing emergency measures in case of an electricity supply shortage this winter. Switzerland—the best country in the world according to a recent analysis from US News & World Report—could shorten store operating hours, lower the thermostats at buildings, and limit the private use of electric cars to “absolutely necessary journeys.”

But just the suggestion of curbing EV use fired up the country’s auto lobby. Director of the Auto-Schweiz Importers' group, Andreas Burgener, called it “a disservice to electromobility.” “Customers who buy or order a vehicle now will think twice about whether they should go back to petrol or diesel,” Burgener said in an interview with Reuters. The proposed measures haven’t been passed into law, but they do serve as a reminder that electricity doesn’t magically appear at every wall outlet—and EVs don’t run on fairy dust.

Natural gas has been getting crushed in warm weather but looks attractive for a bounce. The risk versus the profit potential for even a dead cat bounce looks intriguing. Option values have been crushed making it look attractive for a gamble.

EBW Analytics says that weather-driven demand continues to collapse into current forecasts for the warmest January in more than fifteen years. EBW says that the natural gas market is undergoing a transition from the risk premium-based backwardation based on shortage risks toward falling into contango relative to an oversupplied 2023 injection season ahead, magnifying recent losses. The February contract is technically oversold, and a short-term relief rally is overdue. Seasonal price risks, however, remain lower.

Learn more about Phil Flynn by visiting Price Futures Group.