Written Commentary
Price Overview
The petroleum complex traded mixed with ULSD and crude registering strong gains while gasoline lagged. The primary driver behind the price moves was the DOE report, which showed crude and distillate inventories declining while gasoline stocks rose as refinery throughput increased moderately.
The report indicated commercial crude inventories fell by 2.0 mb compared to expectations for an increase of 1.6. An uptick in exports and a decline in imports helped facilitate the draw down in crude, along with a modest pickup in refinery utilization to 75.8 as the Midwest (Padd 2) jumped. Distillate followed on last week’s decline with another drop of 3.2 mb this week. Stocks remain well above year ago levels of 131.3 mb, currently at 172.8. However margins remain weak, near 8.30 on the December contract. Restrained refinery operations should continue to lead to a more balanced market, particularly as demand picks up ahead of winter. Gasoline inventory levels built by .7 mb compared to expectations for a drawdown. Disappearance levels continue to stagnate near 8.5 mb compared to year ago levels of 9.3. Total product supplied was 17.4 mb compared to 20.8 at this time last year.
Natural Gas
With the November becoming the front month yesterday at a large premium to the October settlement as well as to the cash market, something had to give. The futures ended over 23 cents lower and followed through today another 14 cents before finding underlying support as the session wore on to settle modestly lower on the day at 2.527. A recovery in production coupled with a lack of near term weather demand added to the downside pressure. LNG flows were off slightly as Sabine Pass and Cove Point undergo maintenance and Cameron remains idle. These issues have heightened congestion concerns as End of Season storage estimates continue to creep higher. Despite the substantial pullback, prices did manage to recover over 10 cents from the lows as demand expectations improved primarily on coal to gas switching. With European LNG prices remaining firm, trade continues to expect strong exports into the winter months once the processing plants get back up to capacity.
Charts Courtesy of DTN Prophet X, EIA, Reuters.
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