Written Commentary
by Stephen Platt and Mike McElroy
Price Overview
The petroleum complex backed off from the levels reached the past two days at just over 95.00 in October crude. The exception being ULSD, which has shown a firm trend since early August and recently reached above 4.00 for a 25 percent increase compared to10 percent in crude and unchanged levels in gasoline. The ULSD strength is the result of heightened demand for middle distillates as Europe stockpiles diesel supplies ahead of the crop harvest and winter due to the limited supply availability of natural gas, crude, and products from Russia. The stock build was apparent from the most recent figures in the Amsterdam, Rotterdam, and Antwerp stock region where Insights Global Data showed increases for all key refined products in the latest reporting week. Total product inventories rose by 383 mt to 5.35 mmt (million metric tons). Gasoline inventories were reported to have reached record levels of 1.53 mmt while gasoil, a middle distillate, rose by 183 and jet fuel stocks fell. The builds suggest secondary inventories have increased ahead of possible shortages. Whether these inventories will be enough will hinge on whether high prices have altered demand.
Talk of OPEC+ output cuts to support prices offered by the Saudi oil minister late Monday has injected caution on the downside with many suggesting that 90.00 might be a key area for Brent. Challenges will remain as competition for OPEC sales to China and India remain intense and takes market share away from some members.
We still suspect that values will move into a near term consolidation phase between 90-95 basis October crude reflecting uncertain economic prospects, particularly in China and the US, offset by low inventory levels and high US exports just as the SPR sales program winds down in October. In the background is uncertainty over OPEC+ statements regarding production cutbacks, along with the EU ban on Russian imports that has been pushed back to February as the Northern Hemisphere winter ends. Of considerable interest will be the Iranian negotiations and whether a deal can be struck.
Natural Gas
Prices managed to recover some of the losses incurred after Wednesday’s announcement from Freeport LNG that their timetable for restart would be pushed back by another month. Volume has been light, with tighter ranges compared to recent trade. Yesterday’s storage report indicated a 60 bcf build which was just slightly above estimates. Prices temporarily retreated but were unable to garner any follow-through as action quickly returned to pre-release levels. Early strength in today’s session was attributed to an improvement in LNG flows to their highest levels since the loss of Freeport, coming in at 11.5 and 11.4 bcf the last two days. Background support came from another record high achieved in Europe, as the benchmark TTF price reached beyond a $90 per MMBtu equivalent. Buying interest dried up later in the session as the additional gas from the Freeport revisions left some traders unwilling to go into the weekend long. The settlement below the 9-day moving average could signal some near-term weakness, with 9 dollars the first support followed by 8.86. The 9.50 area would be initial upside resistance, with not much in the way until another test of 10 dollars if upside momentum returns.
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