Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex traded on the defensive, with crude settling 88 cents lower at 81.94 while products were mixed with gasoline up 2.13 cents and ULSD off 4.67. Caution in advance of the DOE report on Wednesday and the CPI release on Thursday encouraged profit taking following recent strong gains traced to the production cuts for September by Saudi Arabia and Russia.
We expect support to develop in the near term as demand for US oil remains robust due to expanding export levels. In addition, the steady decline in US rig counts has caused concern over future production. Current rigs at 525 are at their lowest since May of 2022. In the background is the sharp decline in US crude stock levels reported last week. Offsetting the bullish implications of these factors is expanding production from Iran, Venezuela and even Libya as supplies of critical materials such as pipe become more accessible.
In the near term, the sharp decline in US inventories will provide a tailwind to prices. Even modest declines in inventories will take us down toward historically low levels which should provide the basis for a move toward the 86.00 area basis prompt crude. Key to the outlook will be demand from China and continued growth to India’s economy, both of which have benefited from discounted Russian crude.
The DOE report is expected to show crude inventories falling by .2 mb, gasoline stocks up .2 and distillate lower by .2. Refinery utilization is esitimated to be higher by .5 to 93.2 percent.
Natural Gas
The market broke out to the upside and tested the late July highs, ending with a gain of 14.8 cents at 2.725 basis September. Although weather reports coming out of the weekend were not warmer across the board, increased demand expectations in the Midwest and South-Central regions kept a bid in the market, and trade through the 9 and 100-day moving averages near 2.60 flushed out stops and additional buying interest. Despite the rally, prices remained inside our tight summer range, and the next few sessions will be key to deciding if prices can achieve a rally into the end of the summer. If above normal heat remains in the forecast and prices can settle above the recent multiple high zone above 2.77, then follow-through would initially target 2.87, with overexuberance opening the possibility for a test of 3 dollars. A failure to hold onto today’s rally could lead to a quick retest of the 2.50 area.
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