Written Commentary
CRUDE OIL
August Crude Oil is higher this morning but inside yesterday’s very wide range, as the market is being buffeted by the Israel/Iran conflict. President Trump left the G7 meeting early and said he is looking for something better than a cease-fire and that he is not in the mood to negotiate with Iran. There was a report yesterday that Iran was open to negotiations but without US involvement in the talks. One of the questions worrying the market is whether the US could be drawn into the war on the idea that US bunker-buster bombs could reach Iran’s underground nuclear facilities. There are also worries Iran may attempt to block the Strait of Hormuz, which is the entrance to the Persian Gulf. There are doubts about that possibility as is Iran so dependent on the revenue from oil exports. However they reportedly have around 27.5 million barrels stored in tankers outside the Gulf, which would enable them it to sell oil for a few weeks. There are also reports that exports out of Iran’s main facility at Kharg Island have been completely halted since Friday. Total crude and condensate exports were forecast to reach 102,000 bpd this week versus a weekly average of 1.7 million so far this year, according to analytics firm Kpler. Ships moving near the Strait have been affected by electronic warfare measures that have interfered with navigation systems, and this caused a collision yesterday. China is reportedly building up its crude oil stockpiles. Their surplus crude (supply minus usage) reached to 1.4 million bpd in May, the third straight month it has been above the 1 million bpd level, according to calculations based on official data.
NATURAL GAS
August Natural Gas reached its highest level since May 12 overnight, finding support over the past two sessions after Iran partially suspended gas production at their South Pars gas field following an Israeli strike on the facility over the weekend. The weekly US storage report will be released at 11:00 AM Central Time tomorrow, one day the early because of the holiday on Thursday. The Reuters poll has expectations for a net change ranging from +89 to +98 bcf. The five-year average change for the week is +88 bcf, with a range of +74 to +98. Last week’s report showed total storage was down -9.0% from a year ago but 4.8% above the five-year average. A mixed weather forecast for the lower 48, with above normal temperatures in the eastern half and below normal in the western half does not point to any extended “heat dome” that would drive cooling demand significantly higher.
PRODUCTS
Like crude oil, August RBOB is higher this morning but inside yesterday’s wide range. Both products are being supported by uncertainty over Mideast supply in the face of an Israel/Iran conflict that has lasted into a fifth day with only slight hints at a possible resolution and the ongoing threat of escalation.
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