Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
Crude oil traded cautiously, slipping 22 cents to 87.29 while the products saw good support with ULSD and gasoline both gaining 6 ½ cents. The weakness in crude reflected a focus on macroeconomic forces following downward revisions in EU economic growth forecasts, with 2023 estimated at .8 percent from 1.1 percent and 2024 lowered to 1.1 from 1.6 percent previously. Attention also focused on the upcoming monthly supply/demand reports from OPEC and the IEA slated for release on Tuesday and Wednesday respectively. Key will be the outlook for 2024 given the differences in OPEC and IEA global demand forecasts of 104.3 and 103.2 mb/d respectively. Low product stocks, especially for middle distillates, continue to be a source of support but are also forcing larger than expected adjustments in demand given the high margins and weakness in global manufacturing.
The market is showing resistance as it approaches the 88-90 range. The possibility that Russian availability is better than indicated by the production cut along with expanding supplies from other members of OPEC, especially Iran, could limit upside movement until a better reading on the global economy emerges. In addition, the build in inventories in China and India could limit buying interest at the higher price levels.
Key to the outlook will be not only the OPEC and IEA reports but also the DOE report and whether it shows a slowing in crude oil stock declines as maintenance limits refinery inputs. US CPI on Wednesday will also be watched closely. The DOE report is expected to show crude stocks declining by 2.0 mb, gasoline lower by .2, while distillates are estimated to have gained 1.4 mb. Refinery utilization is expected to have decreased by .6 to 92.5 percent.
Natural Gas
The market experienced lower trade early in the session before ending with a small gain as the October contract settled at 2.608. Weakness was traced to a weekend drop in LNG nominations as Freeport was off by nearly 1 bcf with no explanation. A normalization in temperatures expected into the second half of September added to the negative tone, but prices recovered as the session wore on and again held above the 2.50 level. Strength to European prices has worked into the forefront as a supportive influence as a strike by Australian LNG workers becomes increasingly more likely. A work stoppage could affect as much as 5 percent of global LNG supply. The 9-day moving average at 2.65 again offered stiff resistance, and a violation of that level could lead to a test of the 100-day near 2.69, with a lack of substantial fundamental support making a move beyond there difficult. With the 2.50 level holding up to the recent negative news flow, it marks solid support into the shoulder season. If negative momentum builds the next target below there remains at the low of 2.377 basis October.
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