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Oil Complex


In respect to market sentiment, today was telling for both crude and products as bearish inventory data had very little impact with upward momentum across the broader crude complex.  While the WTI curve was lower day-over-day it was arguably only down as a result of producer hedging, with this argument supported by a remarkably uniform change across a multi-year strip.

The front month WTI contract (Oct) was down $0.32/barrel on Wednesday with a closing price of $88.52.  For the second straight day there seemed to be material resistance near $89.50, and while that level was momentarily breached intraday, selling pressure mounted in afternoon trading.  Front spread contracted by less than a nickel with both the Oct/Nov and Nov/Dec spreads sharply backwardated.

Cals 24-26 were essentially all down in tandem on Wednesday.  The 2024 strip gave up $0.21 closing at $82.17, followed by a $0.20 decline for Cal 25 which ended the day at $75.63, and the 2026 strip at -$0.16 and a $71.08 close.

Products were higher on the day with surging cracks spreads expanding further on a modestly weaker day for crude.  The front month diesel contract was up $4.50/barrel, and this leaves the Oct diesel crack at more than $55/barrel. Gasoline did not fare as well, but a $0.44 gain for Oct RBOB did allow for a widening in the gasoline crack as well.  At just under +$26, the gasoline crack is retaining material seasonal strength.


Today’s DOE stats confirmed a week-over-week bearish change in inventory first suggested in yesterday afternoon’s API stats, but this news over the past couple of sessions has had little impact on a market that is convinced we are going higher.  DOE data showed a 3.96 million barrel build in crude stocks, a 3.9 million barrel build in distillate stocks, and a 5.6 million barrel build for gasoline.  A total crude + product increase of roughly 10 million barrels counters the prior 3 weeks when inventory data consistently came in on the bullish side of the ledger.

On a more positive note, and despite the large overall build in crude stocks, inventory at Cushing fell once again-(2.45 million barrels week-over-week).  This was the 10th week out of the past 11 with a withdraw reported at Cushing, and inventory at the NYMEX benchmark location remains very low while countering this change was another small reported uptick in production in the lower 48.  Prices stabilizing at more than $70/barrel for a multi-year strip are now at levels which likely make for some difficult budget decisions as CAPEX plans for 2024 are set over the next couple of months.

Presently, global oil markets remain highly correlated to commentary from OPEC with yesterday’s issuance of their monthly oil market report the latest such example.  While there really was not a change to their forecast, which reaches through 2024, they continue to expect a second consecutive 2 million barrel per day or greater increase in Y/Y oil demand globally.  The 2.25 million gain for 2024 v. 2023 is conveniently the exact magnitude of their supply cuts relative to where output was in September of last year.  This should create some suspense for the market heading into next year.


Natural Gas

After briefly breaking out of a malaise yesterday, the NYMEX natural gas curve was back on its heals despite very consistent out performance in the power sector.  Natural gas consumption in the power sector is being supported by heat in Texas, low wind output across the middle third of the country, and advantaged pricing relative to coal in a few basins which have already begun to see load begin its bi-annual decline.

Additionally, sampled storage data continues to reflect tight balances, suggesting the next 2 EIA reports may cumulatively add less than 100 Bcf to underground storage.  At a time of year when there are often single weeks posting triple digit builds, it should catch the market’s attention that this hurdle is either not, or only marginally, being met over twice the length of time.

For tomorrow’s EIA inventory report the market is expecting a storage build in the low 50s (Bcf).  This would compare to the same week last year when a build of 71 Bcf was reported on approximately the same amount of cooling degree days.  Additionally, a low 50s build, would be the smallest Labor Day build since 2012, a year when low prices simultaneously stimulated demand and curtailed supply.  While the market is already well aware of demand side strength this summer, it has yet to openly consider the possibility that production is fading.  We also see greater odds that tomorrow’s build could be 5-10 Bcf lower than market expectations vs. 5-10 Bcf higher, potentially adding some intrigue to tomorrow’s trade date.

Today price action was rather benign, but as noted above not favorable for those with market length.  The prompt month contract (Oct) closed $0.063/MMBtu lower, after rallying $0.135 the day before.  October futures ended the day at $2.68.  Cal 24 was also in the red on Wednesday with a loss of $0.012 and a closing price of $3.407.  Curve flattening was the theme to some extend on Wednesday with Cals 25 and 26 posting small recoveries.  The 2025 strip picked up three ticks closing at $3.956 while Cal 26 gained $0.026 finishing the day at $3.989.

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