Written Commentary
NATURAL GAS
September Natural Gas fell to new contract lows yesterday, as cooler weather, ample US supply and a reduction in gas flows to US LNG export plants in the wake of Hurricane Beryl erected a wall of bearish news. LSEG said natural gas flowing to US LNG export plants was on track to drop to a 12-week low on Wednesday, due mostly to a shutdown at the Freeport Texas plant, but there was also a new reduction this week from at Cheniere’s Corpus Christi plant. Earlier this week EIA had said US electricity demand reached an all-time high on Monday, but they revised that down yesterday to 739,849 megawatts (MW), which would not break the prior all-time high of 742,600 MW set on July 20, 2022. It would still be the highest since usage peaked at 741,815 on July 27, 2023. For the EIA storage report today, the trade is looking for an increase of 12-30 bcf. As of last week’s report, storage was running 9.7% above a year ago and 18.7% ahead of the five-year average.
CRUDE OIL
September Crude Oil is slightly lower this morning after yesterday’s rally in the wake of the bullish weekly EIA supply report yesterday. Reuters reported overnight that three sources within OPEC+ said the group is unlikely to change their output policy at the August meeting, which includes plans to start unwinding one layer of cuts beginning in October. China exported 820,000 tons of diesel in June, which was up 180% from a year prior. Year to date exports have reached 5.3 million tons, which averages to 883,000 per month and is down 29.5% from a year ago. Gasoline exports were down 1.9% from a year ago in June, and year to date exports were down 20.2%. Jet fuel exports were up 53.2% from a year ago, with year to date exports up 43.2%. Cumulative exports of jet fuel are almost as much as gasoline and diesel combined. The EIA report pushed concerns about Chinese demand aside for the day. The steep slide in the dollar to its lowest level since June 7 on growing expectations for a Fed rate cut also supported the market.
PRODUCT MARKETS
Surprise increases in US gasoline and distillate stocks this week have the product markets at odds with crude oil. Yesterday’s EIA report showed US gasoline stocks increasing by 3.3 million barrels last week, but they were expected to decline by 1.7 million, and distillate stocks were up 3.5 million versus expectations for a decline of 500,000. Implied gasoline demand came in at 8.8 million barrels per day versus 9.4 million the previous week and 8.9 million a year ago. Gasoline stocks are above the five-year average for the first time since January, and implied gasoline demand lowest since April 28. The diesel crack spread fell to its lowest level since December 2021 and the 321 crack fell to its lowest level January 2024.
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