CRUDE OIL
At least in the early action today, the October crude oil contract has not extended last week’s action with a fresh higher high for the move. However, the petroleum complex continues to garner support from a refinery fire in New York as that is pumping up product prices. Certainly, a slowdown in feedstock purchases at the beleaguered refineries are expected but the overall national US refinery operating rate is strong at nearly 95%. It should be noted that in this week’s positioning report bullish positioning was reduced by the spec and hedge fund camps in WTI and Brent oil. Other supportive headlines from Bloomberg are the lowest Russian refinery activity readings since July and a 23% decline in global crude oil in floating storage. While the strength and track of tropical storm Idalia is not currently ultra-threatening, that storm combined with recent increased tropical wave action should keep some sellers on the sidelines. With a very impressively strong recovery close on Friday, the bear camp was caught pressing the market following the Fed Chair’s speech. However, demand fears should be a limit on the bull case, especially if global equity markets extend last week’s downtrend with new lows for the move. There is a measure of supply threat from a hurricane/tropical storm in the Gulf but as of this writing, no storms have made landfall. On the other hand, Tropical Storm Idalia is expected to make landfall on Wednesday near the Florida Panhandle and is projected to make landfall as a category 3 hurricane. The storm is not expected to become a hurricane until Tuesday morning, and the track could skirt the eastern edge of offshore platform concentrations. The most recent COT positioning report in crude oil showed a modestly overbought contract which has likely become more overbought given the rally off last week’s low.
NATURAL GAS
While significant cooling demand last week and a return of heat on Tuesday did not prompt significant buying last Friday, the bull camp appears to be stimulated by the potential for lost production from a hurricane in the Gulf of Mexico. It is also possible that prices are garnering lift this morning following news that Chevron LNG workers in Australia have been given the legal right to strike. Furthermore, a much smaller than expected weekly injection last week is probably given more credence today as other supportive fundamental developments have surfaced. The current track and strength forecast Idalia will become a category one storm early Tuesday and could sweep of the eastern edge of offshore platforms, but unless the track shifts north westerly the threat against production is modest. The storm is expected to stay east of natural gas export terminals in Louisiana and Mississippi and is likely to fall to a category one hurricane after making landfall and impacting export terminals in Georgia and South Carolina. In the end, the upside action should be limited but a gap higher trade should leave the bull camp in control today.
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