Written Commentary
CRUDE OIL
November Crude oil was higher overnight following a mild recovery yesterday. UBS is estimating that Hurricane Francine will cut US Gulf oil output by 50,000 barrels per day in September and that the storm has likely disrupted about 1.5 million barrels of US production. Six eastern Louisiana oil refineries, mostly around new Orleans, were operating with minimal staff. The Gulf is home to about 15% of US oil production and 2% of natural gas. With the storm passing the market could resume its focus on demand. One supportive factor is the technically oversold condition of the market after it fell to its lowest level in 15 months yesterday. Yesterday’s EIA report had crude oil stocks increasing less than expected but gasoline stocks increasing rather than decreasing and distillate stocks increasing much more than expected. Despite the increase this week, crude oil stocks are still below year ago and five-year average levels. Implied gasoline demand is on a seasonal downturn. Stocks at Cushing, Oklahoma K fell 1.7 million barrels to their lowest level in 10 months.
PRODUCT MARKETS
October RBOB was slightly higher overnight after bouncing off eight-month lows yesterday. Hurricane Francine is expected to slow production somewhat as refineries have slowed operations ahead of the storm. The 2.3 million-barrel increase in gasoline stocks in yesterday’s report was larger than expected. The deficit to year ago levels is now down to 3.5 million. October ULSD also bounce off eight-month lows yesterday and extended its recovery overnight after falling back to unchanged. Distillate stocks also increased more than expected last week.
NATURAL GAS
The hurricane is expected to spare LNG plants recently built and expanded in the Gulf, as the storm’s track shifted east over the course of the week. This should ease concerns about a backup in US supply. November Natural Gas is lower this morning but inside yesterday’s range. We expect the market to focus on the storage report later this morning. A Reuters survey of analysts calls for increases of 49 to 68 bcf for the week ending September 6. The five year average increase for this week is 67 bcf. US storage levels are ahead of year ago and five-year average levels, but the surpluses have been narrowing.
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