Written Commentary
CRUDE OIL
Crude oil continues to face Chinese demand concerns, which are unlikely to go away until COVID restrictions are relaxed. The market received some badly needed bullish supply news over the weekend, but it seems to need stronger global risk sentiment to sustain a recovery move. October crude oil finished Friday with a modest gain but has fallen into negative territory coming into this morning’s action. OPEC+ decided to reduce their October output by 100,000 barrels per day (bpd) on Monday, which was viewed as a sign that they will be more reactive to price declines. Russian Deputy Prime Minister Novak said that the decision was to expectations of weaker global economic growth, but some members may have also based their decision on the potential for expanded Iranian crude oil exports. Iran’s Petroleum Minster said that the world needs more Iranian oil, and that his country was ready to play role in providing it “away from politics.” There are forecasts that US crude oil exports to China will reach a 20-month high in September and may increase even further by November.
RBOB and ULSD initially benefited from the surprise OPEC+ production cuts, but ULSD continues to outperform RBOB, as it is holding its gains this going into this morning’s action while RBOB is lower on the day. Recent rainfall has lifted Rhine River levels, which could help ease supply bottlenecks, but the prospect of European energy rationing this winter could continue to underpin ULSD prices this week. US retail gasoline prices have fallen $1.25 per gallon from their record high above $5 in early June. While a pullback in prices during summer is not unusual, this year’s pullback is the largest (both outright and by percentage) ever and is largest price move in either direction since 2005.
NATURAL GAS
Natural gas has been unable to find its footing after falling out of its late August consolidation zone with a steep loss on Friday and further declines overnight. Gazprom announced late Friday that it would extend the shutdown of the Nord Stream One pipeline indefinitely. They said that the shutdown was due to “turbine problems” and but most analysts and traders feel that there is plenty of political subtext to this action. European gas prices rallied 35% early Monday, but they did not retest their late August highs, as the pipeline was only at 20% capacity before the shutdown. France and Germany announced a potential deal to swap gas for electricity, and Norway is on track for record gas exports this year. This has dampened anxiety in Europe and has weakened US gas prices.
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