Written Commentary
Price Overview
The petroleum complex came under pressure after early gains failed to attract follow-through. A weaker than expected jobs report appeared to inject caution into the market as concern over the tracking of the pandemic remained in the background. Nevertheless, support on the pullback was apparent on the shut-in of as much as 1.7 mb/d of crude oil in the Gulf of Mexico as damage to heliports and fuel depots presented challenges to crews returning to offshore platforms.
Ideas that reductions in offshore production and refinery outages will constrain supply amid already low inventory levels continued to support prices. The OPEC agreement to follow-through on a plan to gradually increase output despite US entreaties to ramp up more quickly suggest some determination on their part to maintain a disciplined approach with an interest in maintaining values near current levels. Key to the outlook will be the pace of economic growth in the US and globally. Although the pandemic continues to create uncertainty, it does not appear that the economies in many areas, including the US and Asia, are shutting down, although adverse impacts are being felt disproportionately by both the travel and entertainment industry which should continue to restrain demand for transportation fuels linked to air travel and commuting.
With the impact of hurricane closures still to be reflected in both crude and refinery output, next week’s DOE figures have the potential to see large inventory draws if disappearance remains firm. The stable outlook for OPEC and declining inventory levels should help underpin values on pullbacks toward the 65.00-66.00 area basis October, as damage to infrastructure is assessed and refineries slowly return to production in Louisiana, with 71.00 posing resistance on the upside. The storm aftermath might temper economic growth over the next few months, but the eventual moves to rebuild US infrastructure have the potential to provide renewed optimism over US economic prospects in 2022.
Due to the Labor Day Holiday, trading in NYMEX Energies will halt at 12:00 on Monday September 6th and resume at 5:00 PM CST.
Natural Gas
The market remained well supported to finish up the week, with the October ending 7 cents higher at 4.712 today, which was a new high settlement for the move. The main supportive factor continues to be the aftermath of Hurricane Ida, as gulf production remains almost entirely shut-in due to issues at Port Fouchon. News on the status of rigs has been sparse, and assumptions that they were mostly unscathed may prove to be premature. Coastal operations remain without power and water, not to mention access to off-shore transit facilities and fuel for helicopters, which are the main transport option to the rigs. This is the 8th consecutive day that production has been choked off. With some talk surfacing that power could be restored by the middle of next week, it appears likely that output will remain constrained for some time. On top of these issues, yesterday’s storage injection of 20 bcf was on the low side and pushed prices to their highs for the week. With LNG flows moving up to 10.8 bcf today, everything seems to be pointing higher, with the 5.00 level a likely psychological target if shut-ins drag on. Despite the preponderance of positive influences, with the RSI surpassing 80 percent, any negative price news could lead to a rapid pullback with initial support near 4.50.
Charts Courtesy of DTN Prophet X, EIA, Reuters
The authors of this piece do currently maintain positions in the commodities mentioned within this report.
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