Morning Highlights
Morning Highlights

8-31 Markets Continue Lower Ahead of EIA Report


Michael Dix

Aug 31, 2022

Outlook: Energies are following through with yesterday’s downturn and are continuing to move lower this morning. Demand concerns with yet another potential interest rate hike coming from the FED along with poor Chinese demand have hurt the energy complex. European energy costs as well as Natural Gas prices continue to be out of site and doing serious damage to the economy. A UK coffee shop had a nearly 10,000-pound utility bill. Overall, the market seems to be in a risk-off mode for the time being as there is a ton of uncertainty.

Crude

  • WTI crude is headed for a third consecutive monthly loss.
  • Drillers are starting to become concerned about the supply of drill pipes and that the shortage could lead to a lack of production.
  • Iran is still confident that a deal can be met with western countries if the final wording is revised.
  • Renewed unrest and fighting in Iraq have traders worried that the much-needed supply of oil could be in jeopardy.
  • Russian seaborne crude is at its lowest level since early March.
  • Venezuela is ready to work with Chevron to restart drilling in the country. Chevron still needs special permission from the US Government to resume operations.
  • Reuters poll is predicting a 1.5 million barrel draw. The API is predicting a 593,000 barrel build.
  • As of 9:10 am CST: Brent crude oil is down $2.61 to $96.70, the US dollar index is up $.216 to 108.992 while the nearby e-mini S&P 500 futures contract is up 13 at 4000.50.

Diesel

  • Refineries in the Middle East are ramping up deliveries to Europe as Russian supply lags.
  • Reuters is projecting a 1 million barrel draw. The API is predicting a 1.7 million barrel draw.

Gasoline

  • A massive refinery in Nigeria that will have a capacity of 650,000 bpd is set to begin operations in mid-2023. The production is enough to eliminate the need for fuel exports into Nigeria.
  • Chinese demand is expected to recover as Covid lockdowns ease up. There are some doubts as some believe the lockdowns are an effort to hide a regressing economy.
  • Reuters is projecting a 1.2 million barrel draw. The API is predicting a 3.4 million barrel draw.

Propane

  • 1.0900 Conway and Belvieu at 1.1000. The market has moved lower along with crude oil.
  • Along with much of the commodity sphere and especially energies propane has moved lower in the face of a global recession that many believe could have serious implications.

Natural Gas

  • Extreme temps in California and the West Coast US have demand expectations spiking over the Labor Day weekend.
  • Dutch TTF prices have slid down lower in a hurry and are now below $70. There is doubt that this will last long as Russia begins a 3-day halt to make repairs and experts believe that it could be followed up with several more halts. If this is the case the market could easily make a run back up to near $100.

PADD 2 Crude Inventory: PADD 2 encompasses Cushing Oklahoma which is the delivery point for WTI Crude oil. Inventories in PADD 2 are bouncing around five-year lows while the rest of the US is in even worse shape. As we continue to drain the SPR we were hoping to see a recovery in these inventories, but that has not yet happened. If we cannot start to make a significant build in inventories before the SPR draws end the market may have toi adjust for the limited supply in the market.