Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
Crude oil prices continued to trade firm, settling 78 cents higher at 70.54 basis August, while gasoline and ULSD finished with gains of 4.15 and 4.04 cents respectively. The ongoing strength of equity markets and weaker dollar provided support along with the approach of the OPEC+ ministerial meeting in Vienna next week. In the background as a supportive influence was the Saudi production cuts being carried over to July, as well as cuts by OPEC+ which have been extended into 2024. Forecasts for further declines in crude inventories as we move through the summer on a recovery in the Chinese economy will continue to underpin prices along with the strong recovery in the Indian economy and improving driving patterns in the US.
We continue to see the main factors influencing the oil market as the following:
- The economic prospects for China and the appearance that the recovery is slower than what it had been prior to COVID
- The impact of higher interest rates on OECD economies and the potential for further tightening
- Russian and Iranian availability
- Inventory levels in Asia and the US and forecasts for a stock decline in the second half of the year
- Recent declines in oil rig counts in the US, which fell to their lowest level since April of 2022
Despite the uncertain interest rate outlook, which suggests further increases, look for an expansion in oil demand and marginal increases in supply for the remainder of the year to provide support to values. Steady growth in demand from India and China should offset the lackluster demand in OECD countries. Reports that availability from Russia has declined in June might provide background support if proven to be true. Negotiations between the US and Iran aimed at limiting their nuclear program appear to be moving slowly. The maintenance of the 1 mb production cut by Saudi Arabia into July and their intention to support prices will continue to tighten supplies and underpin valuations later this summer, with the potential to push values toward the 75-76 level basis prompt crude.
Natural Gas
The market regained upside momentum over the last two sessions, adding 3 cents yesterday and jumping another 9.7 cents today to end the week at 2.798 basis August. Yesterday’s storage report brought back buying interest as the 76 bcf build was well below estimates. Increasing gas to Sabine Pass after extended maintenance added to the bias as LNG flows moved up to the 12.6 bcf/d area recently. Two-week forecasts remained above normal and offered background support. Offsetting the upside tilt was an uptick in production to above 102 bcf today, along with a continuing recovery in imports from Canada which crept up toward 9 bcf/d this week. The settlement above the 9-day moving average is a near term positive that again targets 3 dollars, with some resistance in the 2.89-2.94 range on the way up. Support surfaces initially near 2.735 and then at the recent lows near 2.61.
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