Written Commentary
CRUDE OIL
Oil prices are sharply higher this morning with the announcement by Libya’s eastern-based government of the closure of all oil fields, thus halting production and exports. Libya has a divided government, and the different factions are in a power struggle, but most oilfields are under the control of eastern Libyan military leader Khalifa Haftar. They currently produce 1 million barrels per day. This comes on top of reports that Israel this weekend launched what it said were “preemptive” strikes against Hezbollah in Lebanon, which raises concerns about expansion of the Israel-Hamas war to a broader area of the Middle East. Hezbollah claimed it had launched 320 rockets and a barrage of drones towards Israel. October Crude traded to its highest level since August 15 overnight, following a sharp rally last Thursday and Friday. The rally Friday came in the wake of Fed Chair Powell’s speech indicting that rate cuts are coming soon. He also expressed confidence that inflation was within reach of the US central bank’s 2% target. China Petroleum & Chemical Corp (Sinopec) reported a net income of 37.1 billion yuan ($5.21 billion) for January through June, up 2.6% from the same period last year, as rising oil prices boosted income. This may buck up demand ideas after the low crude oil utilization figures and disappointing economic data recently. US oil rigs in operation were unchanged last week at 483. This was down from 512 at the same time last year and the lowest for this point in the season since 2021. EIA crude stocks fell last week, and they are the lowest for this time of year in at least six years. Friday’s Commitments of Traders Report showed managed money traders were net sellers of 22,130 contracts of crude oil for the week ending August 20, reducing their net long to 178,609. This is well below the record net long of 496,000 contracts from 2018 and is far from overbought.
PRODUCT MARKETS
October RBOB and ULSD are sharply higher this morning following the rally in crude oil in the wake of a Libyan production shutdown and increased hostilities between Israel and Hezbollah. Friday’s Commitments of Traders Report showed managed money traders were net buyers of 3,028 contracts of RBOB for the week ending August 20, increasing their net long to 16,882. This is close to a flat position when compared to the record net long of 132,000 from 2018. For ULSD, managed money traders were net sellers of 4,068 contracts, increasing their net short to 24,548. This is the largest net short since 2020 and is moving into oversold territory, but it is well above the record net short of 45,000 from 2015.
NATURAL GAS
October Natural Gas extended last week’s mild selloff overnight and fell to its lowest level since August 7, despite a heat wave hitting the central US this week. US gas in storage increased last week, widening the surplus to year ago. Storage was up 7.0% from a year ago and 12.5% above average. Some meteorologists say weather across the US is expected to stay mostly hotter than normal though September. However, the 8-14 day forecast is varied, with cooler than normal temperatures over the Midwest, Great Lakes, and Great Plains and warmer than normal in the west and southeast. US gas rigs in operation fell by 1 last week to 97. This was down from 115 at the same time last year and the lowest for this point in the season since 2020. LSEG said gas flows to seven major US LNG export plants rose to 12.9 bcfd so far in August, up from 11.9 bcfd in July versus a record monthly high of 14.7 bcfd in December. This trend could help improve US offtake. Friday’s Commitments of Traders Report showed managed money traders were net buyers of 21,133 contracts of natural gas for the week ending August 20, reducing their net short to 40,280. This is close to a neutral position when compared to the record net long of 272,000 from 2018 and the record net short of 330,000 from 2020.
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