Written Commentary
CRUDE OIL
October Crude Oil traded to new contract highs and the nearby contract to its highest level since early June on Tuesday on more hostilities reported in the Middle East over the weekend The Houthis attacked energy facilities in Saudi Arabia, causing operations to halt in some cases, with reports of 73 people wounded. Iran threatened the United States with “economic warfare” and said it had fired an advanced missile at US warships. The Islamic Republic has vowed to announce a new restricted zone in the Gulf in the coming days, including maps of a new shipping corridor through the Strait of Hormuz. On Saturday US and Iranian forces fired at vessels in waters around Iran, including three Iranian oil carriers struck by the Americans and three tankers that Iran said it targeted while on unauthorized routes in the strait. The US military said its warships evaded any missile attacks. US Central Command said it struck the three Iranian vessels, including one off the coast of Kharg Island after Iran’s Islamic Revolutionary Guard Corps launched ballistic missiles at two US Navy ships. One question on traders’ minds is the extent to which Iran’s leverage is waning as US sanctions tighten. China’s crude oil imports increased for the second straight month in August were but were still down 23.4% from a year earlier.
PRODUCTS
Product prices were higher early Tuesday in line with crude oil, with October RBOB pressing to new contract highs and October ULSD approaching their contract highs from last week. This is not a surprise, but senior industry executives said on Tuesday that global diesel supply will remain tight due to a lack of spare refining capacity, Russia’s export ban, and the approach of peak winter demand.
NATURAL GAS
October Natural Gas was near unchanged early Tuesday but was in the vicinity of last week’s seven-week highs. The market is attempting to establish a bottoming pattern after reaching contract lows in August. The warmer than normal summer appears to be putting a minor dent in US supply, as builds have been running below normal the past few weeks despite record output. LSEG said average gas output in the US lower 48 states rose to 112.9 billion cubic feet per day (bcfd) so far in September, up from a record of 112.2 bcfd in August. The market may also be drawing support from LNG exports, with LSEG also reporting average gas flows to the nine big US export plants reaching 18.1 bcfd so far this month, up from 17.2 bcfd in August. The 6-10 and 8-14 day forecasts show a mix of above and below normal temperatures across the lower 48 states, with the normal/below normal temps across the north and the above normal temps across the south. This is probably a good mix for natural gas consumption, as the cooler temps in the north could invite some heating demand while the warmer temps in the south maintain cooling demand. However, keep in mind that is the shoulder season, and temperatures that are extreme for the season do not necessarily mean they are extreme in the absolute sense. Gas Infrastructure Europe data indicates that European storage sites are currently around 66% full, the lowest level for this time of year in 15 years and roughly 12% below last year. Inventories typically peak in early November.
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