Unplanned Gas Outage in Norway
With gas in European storage at 94.4% of full capacity or 10% above normal levels there is little cause for concern that current injections are lower than withdrawals. While there is a longer than expected unplanned gas outage in Norway many portions of the US and Europe have for the time being entered the low demand shoulder season. Adding into the Bears travails the Chevron’s strike burdened Australian LNG facility has returned to full capacity. Adding insult to injury wind power generation in Europe has expanded thereby reducing the consumption of gas. Lastly, despite some residual heat throughout portions of the US and another narrowing of the EIA natural gas stocks surplus to 5-year average levels last week the path of least resistance down in natural gas. Adding to the bearish environment is a significant jump in gas rigs operating which has reached the highest level since last November. Certainly, the European countries are likely to begin topping off their strategic storage especially if natural gas prices forge new lows and create an attractive price incentive.
Another day, another new contract high in November crude oil. Not surprisingly, the focus of the bull camp remains squarely on tight supply with speculative buying from tight supply this morning fueled by an 8.9% drop in global floating storage, a forecast from Citi that both Russian and Saudi Arabia might increase cutbacks in the 3rd and 4th quarters, and news that Cushing, Oklahoma oil stocks continue to plummet with only 24.965 million barrels remaining. The magnitude of the Cushing inventory slide is very significant as there were 42.844 million barrels at the storage facility at the end of June. In retrospect, both macroeconomic and energy demand sentiment improved last week with decent Chinese numbers and the trade somehow able to interpret US CPI and PPI as a sign inflation was moderating. While China posted crude oil output 3.1% above year ago levels at 17.4 million tonnes last month, that was massively offset by the countries 30.9% increase in imports of 52.8 million tonnes. It should be noted that Russian crude oil continues to trade at a sizable premium to global crude pricing with China also buying crude oil from Russia at a large premium to the world market. Perhaps the most important component of revived global energy demand views is the inability to produce enough diesel fuel to satisfy current market needs. Last week, the US rig operating count increased by two with 641 rigs operating compared to 763 one year ago. Without a fresh surprise supply glitch or continued improvement in global sentiment crude oil prices are now expensive.
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