Written Commentary
CRUDE OIL
October Crude Oil was a little higher overnight but inside yesterday’s range as traders were getting a little cautious ahead of Friday’s summit talks between President Trump and Russian President Putin. Any progress towards peace in Ukraine would forestall threats of severe sanctions on Russian crude oil exports. Trump has threatened secondary tariffs on buyers of Russian crude, namely China and India, and he said yesterday that Russia could face “severe consequences” if Putin does not agree to peace in the US. Some have suggested that he will drive a harder bargain than Putin usually encounters. On the bearish side, higher OPEC+ production could provide an offset, and OPEC has the capacity to increase output further if needed.
NATURAL GAS
Yesterday’s EIA report was neutral against expectations for gasoline and diesel, and that seemed to allow room for a bounce in RBOB but not so much for ULSD. Gasoline stocks were -0.8 million barrels vs -0.7 million expected, while distillates were +0.7 million barrels vs +0.7 million expected. Implied gasoline demand was down slightly from the previous week and from a year ago. US crude oil and distillate stocks remain near their lowest levels in six years, but distillates have recovered from the historic lows from last month. Market direction may be determined by the outcome of the Trump/Putin talks. October RBOB bounced off six-week lows yesterday and extended its rally overnight to its highest level since last Friday.
PRODUCTS
October Natural Gas is hovering near yesterday’s 3 ½ year lows this morning with the market expecting another strong injection in today’s EIA storage report. For the report, a Reuters poll of analysts has an average expectation for natural gas storage to be +54 billion cubic feet for the week ending August 8 (range +31 to +59). The five-year average change for the week is +31 bcf. Last week’s report showed storage was +7 bcf for the week ending August 1 and was only the second time since April 11 that the weekly increase was below average. Tropical Storm Erin is expected to strengthen into a Hurricane this weekend, but most of the models show the storm turning eastward and avoiding the US East Coast, which would limit the loss of power plant demand that can come when hurricanes knock out power distribution.
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