Outlook: Energies markets have caught a bid this morning following a production cut extension from Saudi Arabia. Early in the session crude was stuck in the black caught between Chinese stimulus and underperformance in the services sector. Additionally, Eurozone business activity continues to trend bearish with underperformance. The Saudis surprised the market today extending their voluntary 1 mbpd production cut through December. Expectations were for an extension through October and a longer-term commitment was clearly not priced in. Russia also extended its export cut of 300,000 bpd through December. Previously they had announced an extension just for September. Overall, the market is feeling undersupplied which is fueling the upside momentum. Goldman projects the global crude deficit at 2.3 mbpd for Q3, and a similar if not larger deficit may be on deck for Q4.
Crude
- Saudi Arabia announced they will extend their 1 mbpd production through December. This exceeded expectations for the cut only to be extended through October.
- Russia will cut oil exports by 300,000 bpd through December, down from 500,000 bpd in August.
- Russia’s seaborne oil exports fell to an 11-month low in August at 5.3 mbpd.
- China’s services activity expanded at its slowest pace in eight months in August.
- Goldman Sachs estimates the global crude deficit at 2.3 mbpd for Q3 this year.
- Eurozone business activity fell by more than expected in August.
- Europe’s fall refinery maintenance is expected to be 800,000 bpd of CDU/primary crude distillation lighter than the 5 year average at 1.2 mbpd, according to Kpler
- Baker Hughes reported US oil rigs were unchanged last week.
- As of 8:16 am CST: Brent crude oil up $1.04 to $90.04, US dollar index up $0.344 to 104.580 while the nearby e-mini S&P 500 futures contract is down 9.25 to 4512.00.
Diesel
- Last week’s COT report showed ULSD managed money traders reduced their net length by 925 contracts to 37,554.
- Backwardation in the prompt contracts increased sharply to 8.64c with the expiration of the September contract.
Gasoline
- Last week’s COT report showed RBOB managed money traders reduced their net length by 4,788 contracts to 67,319.
- With the expiration of the September contract, a roll gap has developed between $2.75 and $2.61 in the continuous RBOB chart.
Propane
- Conway is trading at .7200 while Belvieu is trading at .7200.
- Conway is trading at 35% of WTI.
- The US is exporting 61% of production as of 8/25/23.
Natural Gas
- Weekend weather runs removed 7 CDDs through the two-week forecast.
- Yesterday, natural gas demand rose to 94.2 Bcf/d.
- The Biden administration is suspending rules allowing shipments of LNG by rail.
- Chevron and the unions are starting mediation talks to avert Australian LNG strike.
- Baker Hughes reported nat gas rigs fell by 1 to 114.
- The back half of September is projected to be cooler than the 10-year average.
Continuous 5-minute WTI: The announcement from Saudi and Russia to extend cuts through the end of the year took the market by surprise this morning. The market jumped around $1.50 as the news broke and is holding its ground near $87. $90 is the psychological upside target this week.
