Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex traded firm with August crude settling 2.06 higher at 73.86. Early pressure traced to the potential for another interest hike was offset by a weaker than expected jobs report. The uncertain interest rate and demand outlook has recently offset bullish undertones traced to the cuts in production by the Saudis of 500 tb/d and decreased Russian export levels for August of a similar amount. The DOE report yesterday and possible global inventory declines remain in the background as a supportive influence with the larger than expected decline in US inventories leading to buying despite continued uncertainty over Chinese demand growth.
The DOE report yesterday showed crude inventories declining while disappearance rates in both distillate and gasoline surged. Commercial crude inventories fell 1.5 mb, gasoline stocks were off 2.5 and distillate declined by 1 mb. Total stocks of crude and products declined by 2.8 mb, with Cushing stocks falling by .4. Refinery utilization fell to 91.1 percent off .9 from the prior week. Total disappearance levels rose to 21.2 mb compared to 20.3 in the prior week with propane and distillate showing strong recoveries. Gasoline disappearance was 9.6 mb compared to 9.4 a year ago. The decline in inventories developed despite a pullback in net export levels to .6 mb compared to 2.9 last week.
Although concerns persist over economic growth in China and the US, the appearance that the main OPEC+ producers will do whatever it takes to support prices is helping provide a more bullish tone. Look for values to advance to the 75-76 level basis prompt crude. Support is at 71.00 basis August. Production cuts by Saudi Arabia and Russia will likely exacerbate the deficit expected in the 2nd half of 2023 despite the economic challenges apparent in China and the US. Of interest next week will be the release of June CPI on Wednesday and its impact on interest rates and Fed policy.
Natural Gas
The downtrend was maintained into the end of the week as the August closed lower for the fourth straight session, losing 2.7 cents to settle at 2.582. Most of the downside today followed the Baker Hughes Rig Count, which showed an increase of 11 rigs after steadily trending lower over the past two months. Prices dipped immediately after the release and found stops below 2.59 that pushed values to an intraday low at 2.536. A significant price reaction to the weekly rig count is rare, and likely instigated by algo trading that magnified the move in what had been a quiet session. Earlier in the day, the delayed storage report had shown a 68 bcf build after reclassifications, which was above estimates, aiding the weaker overall tone of the market. Production has held near 102 bcf/d as a limiting factor all week, along with current weather hovering near average demand levels nationally in the 1-5 forecasts. Support now comes in at 2.50 and then 2.45, without much below there until the lows near 2.25. If forecast can maintain the swing to hotter temperatures that is expected in the 7–14-day outlooks, the market could stabilize and work higher into the end of next week. Resistance will be offered near 2.62 and then in the 2.71-2.74 range where the 9 and 100-day moving averages rest.
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