Written Commentary
CRUDE OIL
December Crude Oil was lower early Friday but inside Thursday’s range, as some of the concerns about increased attacks on ships in the Strait of Hormuz this week eased a bit after President Trump said the US would attack Iran before midterm elections and said his administration was having productive discussions with Iran to end the war. The Iranian Foreign Minister said they are reviewing the US response to their proposal that would reopen the Strait of Hormuz. US oil producers in the Gulf of Mexico had shut in about 1.3 million barrels per day, or 62.9% of current oil production out of the Gulf as of Thursday due to Hurricane Isaias. The storm is expected to make landfall late Friday. the US produces about 2 million barrels of oil per day from the Gulf, roughly 15% of total US crude output. China is expected to resume refined fuel exports after a halt during the Golden Week holiday. Crude oil prices have seen support on this week from increased attacks on ships in the Strait of Hormuz and from ship tracking data that indicated a slowdown in transits through the Gulf as the week progressed. Transits were estimated at 7-10 ships on Tuesday and Wednesday versus 20 each on Sunday and Monday. These numbers do not include the vessels that had their transponders turned off. This was after the market had fallen to its lowest level in a month on reports that oil shipments out of the Mideast had reached their highest level since the war began. A Reuters story suggested that high shipping costs are pricing US crude out of the Asian market in favor of Mideast supply suggests a possible upside limit to prices for now.
PRODUCTS
Like crude oil, product prices were lower early Friday but inside Thursday’s range, as the market was tempered by a less combative tone from President Trump. Asia supplies appear to be loosening up. China is reportedly ready to resume its refined fuel exports after the Golden Week holiday. Oil product inventories in Singapore reached a two-week high at 39.80 million barrels on October 7, up 4.5% from the previous week, according to data from Enterprise Singapore. Refining activity in along the US Gulf coast has been curtailed with the anticipated arrival of Hurricane Isais late Friday. According to Reuters, about 500,000 barrels of daily refining capacity are in the storm’s path. The Ukrainian military on Thursday said it struck Russia’s largest oil refinery in Siberia.
NATURAL GAS
November Natural Gas has seen some choppy action over the past month as a surprising drop in US production offers the most supportive news for the market in quite a while. The decline is being attributed in part to pipeline maintenance issues, but prices hovering around contract lows may also be playing a part. About 1.1 billion cubic feet per day of natural gas output in the Gulf of Mexico have been shut in by Hurricane Isaias,. This represent about 57% of US natural gas production FROM THE GULF but only about 2% of total US gas production. If anything, big storms in the area can lower demand if they result in power outages and if they interrupt operations at LNG facilities. LSEG said average gas output in the US Lower 48 states is running around 111.2 bcfd so far in October after reaching record highs of 113.3 bcfd in August and September. Average gas flows to the nine major US LNG export plants are running around 16.9 bcfd this month, down from 17.9 bcfd in September and 18.8 bcfd in April. The decline in output is greater than the decline in LNG loadings.
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