Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
Support to the petroleum complex continued on expectations for crude and product inventories to fall dramatically during the third quarter on peak seasonal demand in the US and Middle East, with prices gaining 1.84 in August crude to settle at $83.38 while gasoline and the crack spreads strengthened appreciably. With speculative interests net short, additional upside is likely given today’s strength, with potential for a test of the 85.00 level basis August.
Key to the outlook will be gasoline disappearance levels over the next few weeks reflected in the DOE report. In the background is the unlikely cessation of hostilities in Gaza and ongoing concern over a deeper involvement by Hezbollah in the conflict. Support could come from new sanctions announced Friday by the US on Iranian companies and vessels involved in the export of petroleum, tightening the global market further. Weakness to Chinese import levels, as Asian imports of crude in the first half of 2024 were down by 130 tb/d from 2023 has potential to undermine demand forecasts and lead to resistance at higher price levels. In the second half, import levels will need to accelerate to meet the OPEC forecasts for China demand growing by 720 tb/d or even the IEA expectations at 500 tb/d.
This week’s DOE report is estimated to show crude inventories falling by .2 mb while gasoline stocks are expected lower by 1.5 and distillate down 1.1. Refinery utilization is expected to gain .9 to 93.1 percent.
Natural Gas
Prices probed to new lows for the move as the August contract settled with a loss of 12.3 cents at 2.478. Current relief from the hot temperature regime has taken away a substantial underlying supportive factor as the market easily took out the mid-May lows today. Heat is expected to return early next week with the string of below normal stocks builds likely to continue, but prices have been unable to find any support areas on their downward spiral. Early storm activity in the Gulf has drummed up fears of demand destruction, and weekend production reached above 101 bcf/d to put additional check marks in the negative column. Today’s extension has opened up the possibility of a push to the shoulder season lows near 2.36 as late weakness drove the settlement below trendline support in the 2.50 area. The market is nearing oversold levels, and any short-covering into the holiday weekend could see a quick bounce in prices that would find minor resistance near 2.60 but nothing substantial until the 2.76-2.78 area.
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