Written Commentary
CRUDE OIL
Crude oil prices continue to extend on the upside from the entrenched supply tightening outlook, but the bulls have seen additional help overnight from projections of a 3rd straight monthly decline in US shale production next month and from signs the funds are returning to the long side. Another minor bullish development is the gradual rebuilding of the US strategic petroleum reserve with purchases of 600,000 barrels last week. While they may be talking their position, OPEC remains very bullish toward prices through the end of next year with demand for their supply expected to outpace increased demand for non-OPEC supply. However, the IEA has reduced its projected 2nd half deficit because of softer demand views. In an indirect headwind development, fund traders are reportedly tempering their bullish views toward diesel, with recent supply and demand fundamentals in gasoline also deteriorating. In a possible sign of overdone bullish sentiment, trade talk of $100 crude is becoming a frequent headline. Also, in an interview with Reuters yesterday, forecast $100 crude oil prices which gives fresh confidence to the bull camp. The Saudi Oil Minister defended OPEC Plus production cuts by saying the world needs “light-handed” regulation to limit volatility, and that provided additional support to crude oil prices. The EIA forecast US shale oil production during October will come in at 9.393 million barrels per day which would be a third monthly decline in a row and the lowest output level since May, with most of that decline seen in the Permian and Eagle Ford basins.
NATURAL GAS
After slumping to the lowest price since early June, natural gas was able to regain upside momentum and finish Monday’s outside-day session with a moderate gain. While feedstock flow to the Freeport LNG export facility has recovered from recent mechanical setbacks, global floating storage of LNG on the week increased by 6.9% and there was overnight talk of lower winter demand because of El Nino. However, with the normalization of the Freeport facility US LNG exports should firmly be above the 13 bcf per day level through the end of this month. The latest 6 to 10 and 8-to-14-day US forecasts have above normal temperatures across large sections of the continental US, but that may only result in a minimal increase for air conditioning usage. As a result, US power plant demand is expected to decline over the next few weeks which may pressure natural gas prices over that timeframe.
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