CRUDE OIL
While it has managed to trade above yesterday’s high, gasoline prices should be held back by a weekly increase in European gasoline, gas oil and fuel oil inventories. While both product markets were able to recover with crude oil prices yesterday, ULSD continues to hold the upper hand on RBOB prices. Wednesday’s EIA report US distillate stocks fell to their lowest levels since June while US kerosene-type jet fuel stocks fell to their lowest levels since May. With US refinery utilization at low “shoulder” season levels, supplies are likely to remain tight over the next few weeks which can underpin ULSD prices. In contrast, US gasoline stocks have held within a 220,000-barrel range over the past 3 EIA reports while implied gasoline demand has been below the 9 million barrel per day level since the Labor Day weekend. Since the end of September, average US retail “pump” prices for regular unleaded gasoline have fallen 40 cents a gallon and have reached their lowest levels since late March, which also reflects lukewarm shoulder-season driving demand.
NATURAL GAS
We maintain our bearish view toward natural gas given the markets lack of strength following talk of potential sanctions on exports of Russian gas.While it has seen a wide-sweeping $0.32 range so far this week, natural gas prices come into today’s action with only a modest weekly loss. As indicated, US dry gas production remains a source of pressure as it has climbed above 105 bcf per day for the first time on record. The last five weekly Baker Hughes US gas rig counts have been between 116 and 118 rigs, fractionally above the 21-month low of 113 rigs in September, so a move outside of that range in today’s report could see an outsized price reaction. The latest EIA weekly natural gas storage report showed an injection of 79 bcf, roughly in-line with trade forecasts.
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