Written Commentary
Price Overview
The petroleum complex traded on both sides of unchanged but closed under pressure as the market continued to survey prospects for demand amid weaker economic data for both the US and China. In the background was a slowing in air travel and the prospect that any recovery in business air travel and international travel has been pushed back by the uptick in COVID cases due to the Delta variant. Overhead selling was also apparent in response to dollar strength and reports US shale production is expected to reach 8.1 mb/d in September, the highest level since April 2020. Although the DOE report provided modest support after its release, the gains could not be sustained as macro influences continue to take center stage. Reports that India was releasing some of its Strategic Petroleum Reserves as it attempts to commercialize its federal storage space was taken in stride given the relatively small quantity.
The DOE report showed crude inventories falling by 3.2 mb compared to expectations for a 1.3 mb decline to reach 435.5 mb, the lowest level since January 2020. Stocks at Cushing continue to decline and remain low at 33.6 mb. Gasoline stocks rose unexpectedly by .7 mb while distillate fell by 2.7 to 137.8 mb compared to 177.8 last year. Refinery utilization rose to 92.2 percent compared to 91.8 percent last week. Overall, crude and product inventories were reported at 1,262.1. mb against 1,443.8 at this time last year. With the exception of Jet kero, inventory levels remain well below year ago levels. Total disappearance levels were strong and reached 21.5 mb compared to 19.5 in the prior week and 17.2 last year. Gasoline disappearance remained stable at 9.3 mb while distillate disappearance was strong at 4.3 mb compared to 3.7 last week and 3.2 last year.
Although the DOE report failed to provide much support, we still see the potential for inventories to fall as we close out the year. This should help continue to provide support near the 65.00 area basis October crude provided economic growth trends remain intact and some tempering in COVID infections takes place in September as some suggest.
Natural Gas
Monday’s bounce ended up being a head fake with those gains relinquished yesterday as the October contract made a new low for the move today at 3.801 before settling higher by 1 1/2 cents at 3.866 and basically where we started the week. The lack of follow through opens up the possibility of a further retrenchment near term. Weather forecasts have been a non-starter as temperatures for the remainder of the month remain slightly above normal but offer no substantial demand potential as the summer winds down. The development of multiple tropical storms has kindled some selling interest as they have reminded trade that the height of the hurricane season is still ahead of us. Recent weakness in overseas LNG prices has also helped pressure the market, but with LNG flows returning to the 11 bcf/d area and premiums still substantial, exports should remain a supportive factor for the foreseeable future. The 3.83 support area has been violated each of the last two sessions, but prices have not managed to settle below there. At the moment the market is sending mixed signals, with the 4.00 level now offering resistance on any recovery. Tomorrow’s storage report is estimated to show a build of 31 bcf compared to the five-year average of 42.
Charts Courtesy of DTN Prophet X, EIA, Reuters
The authors of this piece do currently maintain positions in the commodities mentioned within this report.
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