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Fears of Global Crude Supply Tightening

CRUDE OIL

With the hard range down failure yesterday followed by a further extension this morning, bullish sentiment has been punctured and the uptrend since the end of August is now in question. While weekly oil in floating storage declined by 11% in the latest weekly readings, this week’s Reuters poll projects EIA crude oil inventories to decline by only 100,000 barrels and therefore fear of large withdrawals from inventories might be tempted down. However, overnight Sinopec purchased several cargoes and yet that has not reversed the developing downtrend. Another fresh bearish development this morning is news that Saudi Arabia and Russia increased their crude oil exports last month by 1 million barrels per day and that should continue to erode fears of global supply tightening. Furthermore, US refineries are expected to undertake the highest fall maintenance in four years with as much as 2.5 million barrels per day of capacity coming off-line and that should reduce US crude oil consumption. While not a major adjustment in supply, OPEC September production rose 50,000 barrels per day last month with September production pegged at 27.97 million barrels per day.

oil pumping

NATURAL GAS

While we expect natural gas prices to remain inside the September consolidation bound by $3.088 on the upside and $2.796 on the downside, the potential for a downside breakout has been increased overnight by softening European prices due to mild temperatures. Furthermore, the markets should see pressure from an increase in Norwegian supply flows as their pipeline flow shifts to exports to the UK. This week’s Reuters poll projects EIA natural gas in storage to increase by 86 to 99 BCF which signals an acceleration of the injection season. In other words, the shoulder season rebuilding is underway despite a large section of the US facing much above normal temperatures recently.

 

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