Written Commentary
CRUDE OIL
October Crude Oil was higher overnight, inside the upper end of the range of the past three sessions. The market has drawn support this week after OPEC+ lifted their production caps by just 137,000 barrels per day versus increases of 411,000 to 555,000 bpd in each of the previous four months. The fact this latest increase moves them into the next “phase” of quota unwinding, having completed the first tranche in September, shows an inclination that Saudi Arabia will aggressively pursue market share, regardless its effect on price. On the other hand, production has not necessarily kept pace with the easing of the quotas, with reports that some producers are already reaching capacity levels. Another supportive factor has been stronger Chinese buying this year, with August crude oil imports up 0.8% from a year ago and total imports since January up 2.5%. The US Treasury Secretary over the weekend mentioned that “secondary tariffs” which the US and EU could impose on the countries that buy Russian oil could have a devastating effect on the Russian economy.
NATURAL GAS
The rally in October Natural Gas off its lows from August has allowed the market to correct an oversold condition, and the market may be approaching the first test of the veracity of the move as it approaches its August highs. LSEG said average gas output in the Lower 48 states has fallen to 107.7 billion cubic feet per day so far in September from a record 108.3 bcfd for the month of August. That record production this summer has kept US storage levels growing at an above average pace. For this week’s EIA storage report, the early Reuters poll has expectations ranging from +60 to +80 bcf for the week ending September 5. The five year average change for the week in +59 bcf. The 6-10 and 8-14 day forecasts show above normal temperatures across most of the lower 48 states, which could postpone seasonal increases in heating demand in the north that would likely offset any late season surge in cooling demand in the south.
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