Oil and natural gas prices are on the rise. OPEC/non-OPEC optimism, cold weather and hot inflation data out of China are all part of it.

Despite growing concerns about the state of the Chinese economy due to capital controls and corruption crackdowns, inflation data is encouraging. Just a day after it was announced that China imported 7.87 million barrels of oil a day in November, the third highest this year and up 18% (year on year), the reading on inflation based on their Producer Price Index is signaling that there may be some underlying strength in the Chinese economic outlook. The Chinese producer price index hit a five-year high of 3.3% in November which soared from lasts months reading of 1.2% in October. China's consumer price index also increased by a more than expected 2.3%, showing signs that demand for both producer goods and consumer goods are strong which would signal continued strength in Chinese’s oil demand. China has looked to rely on imports to feed the teapot refineries as opposed to domestic supply.

Of course, there is a lot of focus on Vienna where OPEC and non-OPEC nations will meet to solidify the non-OPEC portion of the production cut. Russia is leading the talks with non-OPEC producers and seems to be taking a leadership role with the non-cartel members. If non-OPEC nations are in unison to cut production, they'll raise prices by acting like a cartel. So maybe we have a new non-cartel cartel. Russian oil Minster Andrew Novak said the US was not invited to the meeting because they are not an oil exporter. That hurts. 

So, if you are not familiar with the deal, so far OPEC has agreed to cut oil production by 1.2 million barrels a day. That was contingent on non-OPEC producers cutting another 600,000 barrels per day. Russia is taking the bulk of the cuts at 300,000 barrels a day and is being joined so far by Oman. Reuters is reporting that Azerbaijan has said it will come to the Austrian capital with proposals for its own reduction. Kazakhstan may offer to freeze output at last month's level.

In the meantime, natural gas is soaring as forecaster are predicting colder weather for longer. Respected analyst Andrew Weissman EBW AnalyticsGroup of is warning of, “massive natural gas withdrawals looming in weeks to come." His forecast calls for further increases in weekly gHDDs Heating Degree days and warns that day-to-day changes in gHDDs, however, do not capture the full picture. He says that the next three draws could total more than 550 Bcf, obliterating the storage surplus that has persisted all year. Once the magnitude of these draws and the impact on storage is better understood, natural gas prices could rise significantly.

We continue to believe that OPEC and non-OPEC will sell the deal. The Saudis and the Russians are already warning their customers. We are also looking for a big move for gas!