Written Commentary
CRUDE OIL
With demand destruction once again a concern, crude oil will likely need a bullish surprise from today’s EIA report to improve on its modest recovery overnight. The market plunged yesterday to its lowest level since March. A report that Russia will not honor its energy export contracts with nations who impose price caps has increased energy supply anxiety in Europe, but a disappointing set of Chinese trade balance data, including a 9.4% year-over-year decline in August crude oil imports, underscored concerns about Chinese demand. The EIA’s Short Term Energy Outlook reduced their forecast for this year’s US crude oil production by 70,000 barrels per day (bpd) to 11.79 million, still well above 11.25 million in 2021.
RBOB has rebounded is posting a mild gain this morning after its steep selloff yesterday, which could put even more emphasis on the implied gasoline demand reading from today’s EIA report. Another reading below 9 million bpd could put renewed pressure on prices. The API survey showed US gasoline stocks declined 836,000 barrels last week, which was roughly half the size of market expectations. ULSD has seen whipsaw price action this month, but it continues to hold its ground well above its early August lows.
NATURAL GAS
Natural gas prices remain on the defensive after losing 15% in value in just three sessions. The October contract gave up early gains yesterday and slid to a new four-week low before finishing with a decent loss, and it has held in a tight range above yesterday’s low overnight. An expected pullback in US power plant demand for next week due to moderating temperatures in the Midwest and Gulf Coast states continues to weigh on prices. This comes at a time when US production has reached record levels. The EIA has projected record US production for 2022 (with an average of 97.09 bcf per day) and 2023 (average 100.36 bcf per day).
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