Written Commentary
CRUDE OIL
October Crude Oil is lower this morning, as expectations seem to be growing that OPEC+ will announce another production hike when they meet on Sunday. By “production hike” we actually mean another lifting of the voluntary cutbacks the group had previously agree to. If that happens, it would mean OPEC+ would be starting to unwind a second layer of cuts of about 1.65 million barrels per day more than a year ahead of schedule. There have only been rumors of the possible increase, and “unofficial” commentary about the possibility of a production increase has been sparser than usual. This would provide some breathing room for global supply if the threatened sanctions against Russia were to take hold, but that likelihood seems further remote after this past weekend’s meeting in China between Xi, Putin and Modi. Trade sources told Reuters today that top Indian refiner Indian Oil Corp skipped US oil in its latest tender and instead bought 2 million barrels of West African and a 1 million of Middle Eastern grade, which suggests a further distancing between the US and India. Yesterday’s weekly EIA stocks report showed crude oil stocks increasing last week versus expectations for a decline, but this more or less confirmed the bearish API numbers from Wednesday night. Crude oil stocks are still near the lowest they have been for this time of year in the past six years.
NATURAL GAS
The recent recovery rally in October Natural Gas stalled yesterday with the weekly EIA gas storage report that come in close to the average expectation but confirmed an above-normal supply build last week. This marked a return of a patten that had dominated for several months after increases had been below normal for three out of the previous four weeks. The report showed storage was up for the week ending August 29 was 3,272 bcf, +55 bcf from the previous week. This was just below the average trade expectation of +56 and within the range of expectations from +45 to +65. The five-year average change for this week is +31. Storage was down 2.2% from a year ago and 5.4% above the five-year average versus -3.5% and +4.7% the previous week. The US National Hurricane Center said a disturbance in the central Atlantic Ocean had a 90% chance of strengthening into a tropical cyclone over the next week as it heads west toward the Caribbean Islands.
PRODUCTS
Product prices are lower this morning, in line with the collapse in crude oil, but neither market is facing the type of technical damage that crude oil is. Yesterday’s EIA report was bullish for gasoline, as it showed stocks -3.8 million barrels last week versus -1.1 million expected. Implied gasoline demand was lower than the previous week but ahead of a year ago. Gasoline stocks are on a seasonal decline. Distillate stocks were +1.7 million barrels versus -600,000 expected.
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