Written Commentary
CRUDE OIL
Crude oil has had a turbulent start to the week, as it continues to have trouble holding a positive tone despite bullish supply developments. Unless a rebound in global risk sentiment can improve demand prospects, chances for a large-scale recovery may be limited at best. October crude fell to a new 5 1/2-month low overnight but then climbed back into positive territory. Putin’s comments that Russia will not stick to current oil and gas contracts if their prices are capped has ramped up supply anxiety and provided the market with fresh support. Chinese trade balance data showed August crude oil imports were 9.5% below last year, which was more evidence of sluggish demand. The OPEC-Plus decision to reduce output by 100,000 barrels per day next month has taken on more significance than its actual impact on supply, as it indicates that their members crude oil think prices have fallen too low over the past month.
While both product markets finished Tuesday in negative territory, they have regained strength this morning in the wake of Putin’s comments. China’s August refined fuel exports increased sharply from July and reached a 14-month high, but that may be due more to expanded export quota than to stronger Asian demand. Labor Day US holiday driving reached a three-year high, but that followed a subdued driving season. As a result, projections are for US retail gasoline prices to continue to fall over the next few weeks.
NATURAL GAS
After yesterday’s steep selloff, natural gas remains far below its August/September consolidation zone and is finding little support from European winter supply anxiety or from Putin’s caustic comments earlier today. US dry gas production reached a record 99.7 bcf/day over the holiday weekend, and it may climb above that level next week. However, US power plant demand is expected to have a fall sharply next week, as the latest 6-10-day forecast has normal to below normal temperatures over the Midwest and Gulf Coast states. The inability to quickly ramp up LNG export terminal capacity in the wake of the Freeport outage has left the US with limited capacity to relieve gas shortages in Europe.
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