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US Energy Supplies Remain Tight

CRUDE OIL

Crude oil prices remain just under this week’s new highs for the move but look to be supported by soaring product prices. While the Biden administration move to cancel all remaining oil leases in Alaskan wildlife areas is not a near term impact on supply, that action rekindles bullish speculation off the premise that the green movement will once again return the market to extreme tightness in the future. However, the bull camp should be emboldened by evidence of tightening US crude oil inventories, favorable road traffic congestion readings from Bloomberg and from increased Saudi crude oil prices for Asian and US refiners. Seeing a dramatic increase in US Gulf Coast oil imports relative to last week partially confirms US domestic supply tightness. Therefore, the fear of even tighter supply looks to continue to offset fears of softening global energy demand. Like the API report Wednesday, a significant decline in EIA crude oil stocks yesterday combined with a moderately large decline in gasoline stocks reconfirms energy supplies remain tight in the US. Seeing US inventories continue to tighten despite strong US oil production certainly confirms the effectiveness of OPEC plus production restraint. In conclusion, both supply and demand remain in favor of the bull camp even though prices have shown a lack of bullish resiliency this week.

oil field sunset

NATURAL GAS

While the October natural gas contract has displayed respect for the $2.50 level over the last 2 days, posted a quasi-double low, and posted a 3-day high this morning the bull camp has a slim edge. While fundamentals have not shifted away from the bear case, this week’s injection report showed a bottom of the range injection of just 33 BCF and the surplus versus the 5-year average declined aggressively and currently sits at half the surplus level seen in early July. Today’s lift is partially the result of the oversold technical condition and the inability to trade below $2.50 but a decision by Australian Chevron LNG workers to strike provides the bull camp its primary lift. While the tropical storm from earlier in the week has become a category one hurricane, the track appears to be too far north to enter the Gulf of Mexico and threaten offshore gas rigs and/or export terminals. While we give an edge to the bull camp today, the prospect of a temporary Australian strike should not be discount. However, just because we think prices have bottomed out does not mean we expect gains to unfold consistently in the days ahead.

 

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