The best way to explain the market action in the energy complex is to compare it to last night’s Presidential debate—kind of a mess with a lot of data that does not seem to match the current reality. Market action, to say the least, has been lousy and even very supportive data from the American Petroleum Institute (API) seems to inspire this market that seems to be fixated on another potential wave of Covid-19 and an increase in Libyan crude oil exports. Forget about reports of tightening crude supply in the U.S. and Japan overnight, the market has denigrated into kind of a brawl that made last night’s debate look almost dignified.

The API reported that the U.S. crude supply fell by 831,000 barrel despite a 1.610 barrel increase in Cushing, Oklahoma. The surprise draws in crude, if confirmed, should lend credence to the threat for Saudi Arabia that the global oil market is much tighter than people think. The mood is still very negative as we are deep in the maintenance season and fears about Covid.

Another surprise was the significant 3.42 million barrel drop in distillate supply. The distillate is the most gluttonous part of the sector, and a draw is a good sign that the market is finding a way to work down some of those supplies.

Gasoline supplies did rise by 1.623 million barrels, and they need to because those supplies are just about 1% above average for this time of year. Still, the US has been more dependent on European gasoline imports that fell to a five-week low.  There is talk about a surge in gasoline imports from Asia, and to be honest, we need it. Japan’s inventories of oil are also down and lower than expected. JODI Data showed that the Japanese crude oil stocks level in June was revised downward by 9.87 MBBL, and its July figure rose month-on-month by 7.13 MBBL to 385.31 MBBL.

Yet the market is worried about how they will absorb oil from a return of Libya’s oil production. Libya’s Sarir oilfield has restarted production at the Sarir oil field, producing more than 300,000 barrels per day (bpd) last year before the shutdown. Libya could add about a million barrels to global production in short order.

We need to get out of September to get the crude oil market out of its funk. It would help if we get a fiscal relief package today.

Natural gas got hammered on reports that the Arctic blast that will come across a big part of the Northern States might not be as cold as anticipated. Reuters reported that, “U.S. natural gas futures for the most active month fell over 8% on Tuesday on forecasts for less demand over the next two weeks than previously expected and a rise in output. For the front-month, however, the contract was up over 21% to a three-week high due to the roll of the less expensive October future into the much more costly November. That is the biggest one-day percentage gain for the front-month since 2009, when similar October to November contract roll caused it to jump 31%. 

On its first day as the front-month, gas futures for November delivery fell 23.4 cents, or 8.4%, from where the November contract traded on Monday to settle at $2.561 per million British thermal units, their highest since Sept. 4. Data provider Refinitiv said output in the Lower 48 U.S. states rose to a one-week high of 86.1 billion cubic feet per day (bcfd) on Monday from a four-month low of 84.4 bcfd last week. With cooler weather coming, Refinitiv projected demand, including exports, would rise from 82.9 bcfd this week to 84.7 bcfd next week due to higher heating usage and liquefied natural gas (LNG) exports. That, however, is lower than the Refinitiv forecast on Monday because higher gas prices were expected to cause some power generators to burn more coal and less gas to produce electricity. The amount of gas flowing to LNG export plants averaged 5.6 bcfd so far in September. That was the most in a month since May and was up for a second month in a row for the first time since hitting a record 8.7 bcfd in February as rising global gas prices prompted buyers to reverse some cargo cancellations. Cameron LNG’s export plant in Louisiana started taking in small amounts of gas over the past few days.
Thanks,
Phil Flynn

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