Written Commentary
CRUDE OIL
With another higher high for the move in the early going today, the trade continues to firmly embrace the idea of tightening supply. The latest surge in tight supply concerns are the result of International Energy Agency predictions that the market will maintain substantial deficits through the 4th quarter. Apparently, some analysts peg the current market to be the tightest in a decade and given the surge in prices overnight a trade above $90.00 looms. Adding to the threat of tightening supply are estimates from the Russian oil minister that Russian oil output will be down 1.5% this year. However, while OPEC reported Russian July output basically level in July versus the prior month, total OPEC August production came in above July by 113,000 barrels per day. According to the EIA the global oil market will continue to tighten with consumption outstripping supply by 230,000 barrels per day. In yet another supportive overnight development ARA crude storage fell 2.1% on a week-over-week basis. In retrospect, seeing Saudi Arabia and Russia extend production cuts to the end of the year laid the foundation for the gains over the last 5 sessions, and therefore that bullish storyline is building daily. Certainly, short-term technical signals in crude oil are overbought with the RSI reaching 81.3, which is near the highest level of the last 12 months. This week’s Reuters poll pegged EIA crude oil inventories to decline by 1.9 million barrels, but weekly crude oil stocks have consistently surprised the trade with much larger than expected declines over the past several weeks. After the close, the API survey said that US crude oil stocks had a weekly increase of 1.2 million barrels which contrasted with trade forecasts for a moderate weekly decline. The latest EIA US crude oil production forecast predicted an increase of 870,000 barrels per day to a production tally of 12.78 million barrels per day, which was bearish given their previous forecast of a gain in production of only 850,000 barrels per day. The latest EIA 2024 US production estimate was raised by 50,000 barrels per day to 13.1 million barrels per day leaving the market with two separate bearish EIA estimates.
NATURAL GAS
The natural gas market surprised the trade with a sharp range up rally perhaps from news that striking LNG workers in Australia and management will not meet with mediators until September 22nd. However, evidence the US was the largest global LNG exporter in the first half of this year should temper the bear case which has been discounting the impact of growing US gas exports on domestic US inventories. It should be noted that the US export strength was accomplished despite the Freeport LNG plant outage which kept their export activity below full capacity as of late March. This week’s Reuters poll projects EIA natural gas storage to increase by 39 BCF to as high as 55 BCF. There are two tropical waves being monitored in the Eastern Atlantic but neither system has reached tropical storm standing. We expect very narrow ranges ahead and advise caution against buying near resistance of $2.85 and or selling near support at $2.499.
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