Written Commentary
Price Overview
Prices have found some footing over the last two sessions after withstanding heavy selling pressure over the past week due to concerns over the spread of the Delta variant. The potential that a US infrastructure bill could finally be passed supported prices yesterday and lead to some short covering. The DOE report this morning held no major surprises, but prices managed to follow through to the upside after its release aided by some early signs that the virus spread may be plateauing in some regions.
The DOE report showed crude inventories declining by .4 mb, less than expectations for a draw of 1.3. Gasoline stocks were near estimates with a 1.4 mb decline, while distillates increased 1.8 mb in a reversal of expectations for a .5 draw. Cushing stocks continued to creep lower, down .3 to 34.6 mb. Refinery utilization jumped up to 91.8 percent from 91.3 last week, while total stocks were indicated down by .1 mb. Total disappearance for all products supplied was off 1.7 mb at 19.5, with gasoline disappearance down .3 to 9.4 mb/d and a small increase in distillate demand of .1 mb to 3.7 mb.
The strength to Chinese demand will be key in determining valuations in the month ahead given they are the world’s number one importer of crude oil. The concerns over the viral spread have overshadow the rise in geopolitical tensions in the Middle East and the impasse in negotiations on Iranian sanctions, which have been drawn out more than originally expected. Subsequently OPEC+ might be the key equalizer at a time when the uncertain economic environment remains a prime consideration. Without coordinated support, further weakness toward the 60.00 area could develop.
Natural Gas
The market probed down to an intraday low at 3.979 before recovering during the day session to settle 3 cents lower at 4.059. A small drop in demand expectations due to cooler weather revisions initiated the selling, aided by production working back above 92 bcf/d over the past few sessions. The projected path of Tropical Storm Fred into the Eastern Gulf may have also brought out some selling interest as lessons from last year show that these storms have become more likely to be bearish to the market due to their potential effects on coastal LNG facilities, tanker traffic, and demand. With potentially the hottest week of the summer upon us, the market has been unable to trade higher in large part due to a recent spike in wind generation along with the previously mentioned issues. The 4.00 area basis September continues to offer significant support as the market has been unable to settle below that level. With overseas LNG prices continuing to move higher and signs of a bounce back in US exports, a test of the 4.40 area into the second half of the month is possible if the warm weather expectations can be maintained.
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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