Written Commentary
CRUDE OIL
Crude oil and its products are under pressure this morning, with front-month crude oil back to within striking distance of making new five-month lows. A poor set of Chinese data has ramped up concerns that their economy may be slowing again, and that has put demand destruction back into the headlines. On Friday the crude oil market seemed to reevaluate the optimistic on demand expectations that came in the wake of the softer inflation readings last week. September crude finished Friday with a heavy loss, but the market finished the week with a $3.08 gain (up 3.5%) for the third positive weekly in the past four. There were positive comments from Iran on the EU’s updated proposal for a nuclear deal, and that increases the chances that all sides (including the US) can come to an agreement soon. If sanctions are lifted, Iranian crude oil exports could increase by more than 1 million barrels per day.
Like crude oil, both product markets have fallen back on the defensive today on concerns about demand. US gasoline stocks saw a significant decline in last week’s EIA report, but average US pump prices for regular unleaded are more than $1.10 per gallon below their June high, and they are back below $4.00. Implied gasoline demand jumped back above the 9 million bpd level, but it is still below where it was last summer. In contrast, ULSD continues to find support from tight distillate supplies in Europe, due largely to a reduction in imports from Russia. There has also been a sharp decline in water levels on the Rhine River, which is a major conduit for petroleum products into Germany.
NATURAL GAS
Natural gas prices are taking a breather after a sharp three-day rally last week. The market finished Friday with an inside-day session and a moderate loss, but it posted a positive weekly reversal from last Monday’s three-week low. Strong demand for LNG imports in Europe and Asia helped provide support, but US dry gas production reached a record high last Monday and US LNG exports continue to be restricted by the Freeport shutdown. The latest 6-10 and 8-14-day forecasts have above normal temperatures in the Pacific Northwest and New England but below normal temperatures over the south central and southeastern US. This is expected to lower US power plant demand significantly this week.
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