Written Commentary
CRUDE OIL
November Crude Oil was higher overnight but inside Friday’s range. Prices set back on Friday as US Gulf crude production began to recover from Hurricane Francine. However, US Bureau of Safety and Environmental Enforcement said on Sunday that nearly 20% of crude production in the Gulf of Mexico remained offline. Reuters is estimating a total of 2.16 million barrels of crude oil had been lost due to the storm. The trade is awaiting the result of the FOMC meeting this week, with expectations ranging between a 25 to 50-basis point rate cut. US oil rigs in operation were up 5 to 488 last week. This was the largest single-week increase since July and the highest total number since June 7. Rigs are down from 515 a year ago but above the five-year average of 487.6. China’s oil refinery output was 13.91 million barrels per day in August, up from 13.908 in July but down 6.2% from a year earlier, official data from China showed over the weekend. This marked the fifth straight month it was below a year ago. Total output since the year began is down 1.2% from the same period in 2023. A slow economy and more LNG-powered trucks have pressured diesel fuel demand. Gasoline consumption in August was below year ago levels. The state of their economy has some impact, but so did the growing popularity of EVs. Chinese gasoline demand it expected to peak in 2025. Chinese industrial output grew at a 4.5% annual rate in August. down from +5.1% in July and the slowest growth rate since March. Friday’s Commitments of Traders Report showed managed money traders were net sellers of 19,844 contracts of crude oil for the week ending September 10, reducing their net long to 105,024.
PRODUCT MARKETS
Long term demand expectations for gasoline and diesel fuel have been hit by the slowdown in the Chinese economy and their rapid switch to alternative fuels, but gasoline prices have fallen to their lowest levels in 2 ½ year and diesel to their lowest in 3 years, leaving both markets in an oversold condition. US gasoline and distillate stocks are above year ago levels but below the five-year averages. Friday’s Commitments of Traders Report showed managed money traders were net sellers of 11,475 contracts of RBOB for the week ending September 10, reducing their net long to 5,193. For ULSD, managed money traders were net sellers of 14,687 contracts, increasing their net short to 38,609.
NATURAL GAS
US natural gas rigs in operation were up 3 rigs to 97 last week. This was the first increase in four weeks and the largest weekly increase since Mid-July. The number of rigs is down from 121 a year ago and below the five-year average of 121.4. EIA projected last week that US natural gas production would decline in 2024 to 103.4 billion cubic feet per day from a record 103.8 billion in 2023. They also projected domestic consumption to reach a new record of 89.9 bcfd in 2024 before slipping to 89.5 in 2025. Top energy executives and ministers are meeting in Houston this week for the annual Gastech conference, and we can expect production and consumption forecasts to emanate from the various meetings at the conference. The US has become the world’s largest natural gas producer, which has help drive prices to multi-decade lows, but the US has also become the world’s largest export of LNG, and that is expected to grow as more export facilities come on line. S&P Global Commodity Insights expects LNG exports to double from their current levels by 2026. Nearly 28% of US natural gas output in the Gulf of Mexico was offline as of Sunday in the aftermath of hurricane Francine, but only 2% of US natural gas production comes from the Gulf. The NWS 8-14-day forecast calls for above normal temperatures across the lower 48, with the biggest extreme centered around the Great Lakes. This could keep air conditioners running a little longer but also postpone heating demand. Friday’s Commitments of Traders Report showed managed money traders were net buyers of 19,311 contracts of natural gas for the week ending September 10, reducing their net short to 50,645.
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