Written Commentary
CRUDE OIL
In a surprise change of stance a Saudi official has sparked talk in the marketplace of a possible OPEC/OPEC+ production “reduction” in output after September! In other words, the oil cartels are potentially considering proactive action to counter the prospect of slumping global energy demand due to recession. Therefore, the threat of tighter supply this morning has offset expectations that China will post another soft oil import tally (for August) around 8.3 million barrels per day (according to Refinitiv Oil Research). However, the potential for proactive reduction in output from the Middle East could dramatically increase support above last week’s low near $85.00. Furthermore, Chinese commercial stockpiles of gasoline and diesel fuel fell by 4.9% last week and there are reports of extremely tight New York gasoline inventories.
As indicated in crude oil coverage this morning, several stories overnight highlighted significant tightness in Chinese gasoline supply but also hinted at some regional tightness in the US. Apparently, according to Reuters New York supplies have tightened and buyers are accepting significantly higher shipping costs to secure supply. However, US seasonal demand is on the decline and global slowing appears to be building, as consumers retrench because of falling disposable income from very high fuel costs. The gasoline market spent most of the Monday US trade in negative territory and ranged down sharply in a manner that suggest it has become the weakest component of the petroleum complex.
NATURAL GAS
Even though October natural gas failed to hold all the initial gains posted yesterday, the market seemed to find support around last week’s highs of $8.862 and the market is back at the highs this morning. Obviously, seeing a 3-day shutdown of the Nord Stream 1 pipeline sparked a wave of speculative and hedge buying and that is a major underpin for prices, especially with a private consultancy indicating adequate winter supply might not be achieved. In fact, reports yesterday suggest even more Russian natural gas supplies will be halted directly ahead.
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