Written Commentary
CRUDE OIL
September Crude Oil was higher early Tuesday but had yet to take out Monday’s high. The Houthis threat to impose a naval “blockade” on Saudi Arabia stands at odds with the suggestions by Iran on Monday that they would be open to reestablishing talks. A “blockade’ by the Houthis would be at the Bab al-Mandab Strait, which leads out of the southern Red Sea into the Gulf of Aden. If they are successful, it would leave only the Suez Canal in the north as an outlet for Saudi crude, aside from the Strait of Hormuz, which is blocked as well. This means any ships headed to Asia from the Red Sea would be forced to travel through the Mediterranean Sea and around the Cape of Good Hope, extending shipping time and adding to the cost. It is estimated that a full closure of the strait would reduce global oil supply by 7%, in addition to the estimated 10% disrupted by the blockages at the Strait of Hormuz.
PRODUCTS
September RBOB and ULSD prices were holding firm early Tuesday but were respecting Monday’s highs. The fact that both markets are at or near contract highs reflects the very tight global supply situation driven by the closure of the Strait of Hormuz this spring and Russia’s loss of refining capability from Ukrainian drones. US gasoline supply is the lowest for this point in the season in at least six year, and distillate supply is the second-lowest.
NATURAL GAS
September Natural Gas was lower early Tuesday and threatening to take out Friday’s lows. As expected, Tropical Storm Bertha has formed over the northeastern Gulf and is expected to follow the Louisiana coast to the upper Texas. Landfall in Texas is expected Thursday night into Friday morning, per World Weather Inc. The biggest threat is a possible loss of demand due to cooler, rainy weather and the potential for it to cause power outages and curtail LNG export operations. Tropical storms tend not to reduce output very much because most of US production is far inland and only about 2% comes from the Gulf. The 6-10 and 8-14 day forecasts show above normal temperatures dominating most of the lower 48, which should generally support cooling demand.
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