Written Commentary
CRUDE OIL
Apparently, demand fears continue to overcome fears of lost supply from political violence inside Iraq. However, the market will monitor the situation in Iraq closely as a conservative estimate for a loss of Iraq oil is 1 million barrels per day if ports are shut down. In a negative development OPEC+ has indicated it will wait for direction on the Iranian nuclear deal before deciding to reduce output. The next OPEC+ meeting is September 5th, and it is not likely that a nuclear deal will be seen before that date. Certainly, the crude oil market is short-term technically overbought with yesterday’s large range up breakout and given generally negative macroeconomic psychology (fresh infection fears in China/energy price recession fear in Europe) the bear camp should have the edge today. An underpin for prices came from Nigeria where their oil output fell to the lowest level since 2016 because of widespread illegal tapping of crude pipelines and or from supply disruptions caused by vandalism.
The product markets saw divergent price action on Monday as RBOB was able to benefit from the rebound in crude oil prices, while ULSD remained on the defensive due to end-of-month profit-taking and additional long liquidation. After leveling off midway through August, average US retail “pump” prices have turned to the downside again and are now at 5 1/2-month lows more than $1.20 a gallon below their mid-June highs. While this price pullback may encourage more driving vacations this weekend, the North American summer driving season will end on Monday which will start a “shoulder” period of lower driving demand.
NATURAL GAS
Natural gas prices continue to see volatile price action but continue to hold their ground near last week’s highs as they are finding support from tight overseas supplies and warm domestic weather. October natural gas started out the week with considerable strength but fell back all the way into negative territory as it finished Monday’s outside-day session with a mild gain. Weekend comments on record high energy prices this winter in Europe provided natural gas with early support, as that should continue to draw significant US LNG exports towards European terminals. There have been reports that Germany may reach their winter gas storage goals earlier than expected, and that may have fueled profit-taking and additional long liquidation yesterday.
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