Written Commentary
by Stephen Platt and Mike McElroy
Price Overview
The petroleum complex attracted buying interest in response to comments from a US official indicating that an immediate output boost was not expected following a meeting between President Biden and Saudi Arabian representatives today. The possibility that supply availability will tighten helped provide background support. Crude registering gains of 1.81 while gasoline was up 2.6 cents and distillates advanced by close to 5 cents.
Ideas that the Fed was unlikely to raise rates by 1 percent this month supported values as weakness to the dollar provided the basis for additional buying interest, although demand concerns remain in the background on recessionary fears. The uncertain supply outlook likely provides support as OPEC continues to pursue measured output increases. Questions as to how quickly the UAE and Saudi Arabia can ramp up production, or if they even want to, offer underlying support.
Demand concerns appear to be priced in below the 95.00 level but will be watched for any sign the Chinese economy is weaker than current forecasts. Dollar direction will also play a part and further strength could limit demand growth. On the supply side, how effective sanctions have been at limiting Russian export levels will also be key along with OPEC underproduction relative to targets, which continues to keep inventories low and provide support.
Natural Gas
Yesterday’s storage report temporarily slowed the recovery in natural gas, as the 58 bcf build was in line with estimates. Trade seemed to have been looking for a smaller number as prices dipped 25 cents after the release. Buying quickly returned today, as warm temperatures continue to be the driving force behind price strength as mid-day model revisions added CDD’s to already hot forecast for the remainder of the month. LNG flows have also been impressive, reaching 11.4 bcf/d yesterday despite the ongoing loss of approximately 2 bcf/d of export capacity from the Freeport shutdown. Another supportive factor that has been under the radar for some time is Mexican exports, which have crept up near 7 bcf over the last few days. Coupled with the strong burns, these flows could go a long way toward eating through the Freeport excesses. Today’s rally marked a new high for the move as a 38 percent retracement of the June break was achieved. The convincing settlement through the 100-day moving average makes the 7.48-7.50 area the next target which would mark a 50 percent retracement. Initial support now moves to the 100-day moving average near 6.725.
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