Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
Support to crude values that carried values up to as high as 82.72 basis August overnight following the Presidential debate could not be sustained with WTI values settling -.20 at 81.54 following reports that Saudi Arabia might cut Crude Official Selling prices in August for a second month to Asia. The potential price reduction in the price differential to Dubai of 65 cents per barrel accounts for up to 80 percent of Saudi Arabia’s exports and would take the current differential for Arab Light from 2.20 premium to Dubai to 1.55. The reduction reflects the increasing share of Russian exports to China which has pared back Saudi exports by as much as 15 percent. The declining market share of Saudi Arabia appears to raise the pressure on OPEC+ to gradually unwind the voluntary production cuts in October as indicated. In addition, some pressure on values might also have been apparent in response to the weak showing of Biden in last night’s Presidential debate raising the odds on the prospect for a loosening of regulations in the US that might have impeded oil production under a Biden Administration in 2025 In addition, the Supreme Court also appeared to have constrained the ability for Federal agencies to impose regulations as well today. These prospective changes in regulations are of longer term significance and might affect the supply balance in 2025.
The Presidential debate last night has heightened longer term political and economic uncertainty in the oil market given the potential changes in investment trends along with changes in the political climate with respect to Ukraine and the Mid_East. In the short term, recent increases in US inventories and lackluster demand for gasoline despite the seasonal pickup along with ongoing uncertainty over the strength of the Chinese economy should maintain resistance overhead. Prospective dollar movement will also be a key consideration as well. We continue to expect a consolidation in the 78-82 range basis August reflecting a relatively stable inventory environment.
Natural Gas
Selling pressure continued in the natural gas, with prices dropping 14.4 cents over the last two sessions to finish the week at 2.601 basis August. The market remained weighed down by excessive stocks despite well above normal temperatures. Yesterday’s storage report showed a 52 bcf injection, which was in line with estimates and unable to garner significant buying interest. Total stocks are currently 528 bcf, or 20.6 percent, above the 5-year average. A brief normalization in overall temperatures has assisted the weakening trend, although the 15-day forecasts are still pointing to near-record demand as the 11–15-day period suggests above normal temperatures for nearly the entire US. The break has retested the late May low near 2.60, with that double bottom marking key support. A move below there would signal a test of trendline support near 2.52. The convergence of the 9 and 200-day moving averages in the 2.83 area would need to be violated to reignite buying interest.
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