Written Commentary
CRUDE OIL
The energy markets are finding moderate pressure early today, but they have settled into a tight trading range as trading volume thins ahead of a US holiday tomorrow. The IEA recent forecast indicates they see a surplus next year even if OPEC+ extends the current production cut agreement into the new year. Therefore, the big question is whether OPEC+ will deepen their production cuts as economic data this week is pointing to a softening of global energy demand into the end of this year. Softening US retail gasoline pump prices signal soft demand, with the US retail gasoline prices down 2.1% and diesel prices down 2% week over week. We suspect Saudi Arabia will roll its current production restraint into next year, but the markets seem to need further indications of supply cuts to avoid returning to last week’s lows. According to Citigroup, there is only a 20% chance that OPEC+ makes further production cuts in this weekend’s meeting. Goldman Sachs see a 35% chance of deeper production cuts at this weekend’s meeting. It should also be noted that crude oil inventories last week went from a deficit to year ago levels to a surplus to year ago levels and the US refinery operating rate continues to hold well under year ago levels which should reduce the demand for prompt crude.
NATURAL GAS
Another day, another new low for the move in natural gas as bearish fundamentals continue to sit squarely on the back of the market. In fact, the distribution chain is full from start to finish with US producing record supply, US exports attempting to remain at capacity and sovereign strategic storage reportedly at capacity in most key consumption areas. Adding into the bearish track is a Goldman Sachs European gas price forecast reduction with higher renewable generation and conservation efforts from last year’s initiatives cutting consumption. Furthermore, expectations for the European winter call for heavier snowfall because of El Nino, but the temperature correlation to El Nino is not as definitive. To find the next support points requires the use of weekly continuation charts and the top of a consolidation zone encountered back in early July which is roughly at $2.790.
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