Stay Informed with Tom Seng's Oil & Gas Commentary

Guardian Mineral Management presents the ‘Weekly Oil & Gas Commentary’ series, offering timely updates and expert analysis on the ever-evolving oil and gas markets. Led by industry veteran Tom Seng, this series provides valuable insights that help mineral owners make informed decisions. Stay ahead of market trends with our in-depth commentary and understand the implications for your mineral assets.

Oil – Fundamental Analysis

Crude prices are higher this week as tanker shipments through the Strait of Hormuz slow once again and as Iran continues to indicate it will permanently operate the key bottleneck. An unexpectedly large increase in commercial oil inventories was seemingly ignored by the markets this week and the IEA forecasted both lower production and lower demand for this year. WTI’s High was Tuesday’s $83.35/bl. for September while the Low was Monday’s $76.80. October Brent crude hit its High on Tuesday at $90.05/bl. with the low on Monday at $83.35. Both grades settled higher on the week. WTI is about ($7.00) down over the last (3) weeks. The WTI/Brent spread has now widened to ($6.10).

 Global crude oil prices moved higher this week as Iran has increased attacks on ships attempting to traverse the Strait of Hormuz while the US continues its blockade of Iranian vessels as well indicating it could maintain this “indefinitely”. This has led to a drop in overall traffic as tanker-tracker Kpler reports about (11) ships per day are now successfully making way vs. over (100) per day pre-war. Iran still espouses the idea of permanently controlling the Strait while charging “administrative” fees for passage. Countering that stance, US President Trump declared this week that we have total control of the Strait. This ongoing uncertainty continues to gyrate prices daily. And, as they look for viable alternatives and new projects to move their oil, refined products and LNG out of the region, petrostates in the Persian Gulf region are conceding that the future of the Strait of Hormuz will be controlled by Iran.

 Despite increasing its output by over +1.0 million bld., Saudi Arabia has only been able to move an incremental +200k bld. and has been forced to store the remainder due to the new disruptions at the Bab el-Mandeb Strait on Saudi Arabia’s west coast in the Red Sea. Its domestic inventories are now the highest since 2016. Meanwhile, Ukraine continues its assault on Russian oil refining infrastructure which is part of the higher refined products market along with the Strait of Hormuz debacle.

 The IEA is forecasting an average drop in global oil production of -4.3 million bld. this year which will result in a 3Q26 deficit of -1.8 million bld. Meanwhile, higher prices for refined products could lead to -1.6 million bld. in demand destruction. On the other hand, OPEC sees a more moderate demand decline of about -580k bld. The EIA expects domestic US oil production to average a record 13.8 million bld. this year.

 The Energy Information Administration’s Weekly Petroleum Status Report indicated that commercial crude oil inventories for last week increased +17.4 million bl. to 424 million and -2.0% below the 5-year average. The API had forecasted a -9.0 million bl. draw while analysts expected a -0.6 million change. Total motor gasoline inventories decreased by -0.970 million bl. to 209 million bl. and are -6% below the 5-year average. Distillates decreased -0.01 million bl. to 107 million bl. and -12% below the 5-year average. Refinery utilization last week was 96.2%  vs. 96.5% the week before representing a decrease of -26k bld. to 17.2 million bld. Gasoline demand was 8.96 million bld. vs. 9.0 million bld. the prior week.  Crude imports were 7.3 million bld. vs. 6.2 million bld. the week before. Exports of crude were 3.7 million bld. vs. the prior week’s 3.5 million bld. Exports of refined products were 8.7 million bld. vs. 7.9 million bld. The SPR was -6.1 million bl. to 299 million bl. (the lowest level since 1983). Stocks at Cushing, OK were +1.6 million bl. to 22.6 million bl. or 30% of capacity. Production last week was 13.8 million bld. vs. 13.8 million bld. the prior week and 13.3 last year. The US oil & gas rig count was +5 last week at 593 vs. 539 last year with +1 in oil and +4 in natural gas.

 Gasoline prices are now $4.08/gal., +$0.36/gal. from last week, +$0.22/gal. from last month and +$0.92/gal. from last year. Prices have never been this high this late in the year before now.

 July’s CPI came in at 3.4%, down from June’s 3.5%. Retail sales fell -0.6% last month after June’s increase. Forecasts called for a +0.1% increase. Jobless claims for last week were 209k vs. a forecasted 204k. The PPI was flat last month. Record refining margins for companies such as Marathon Petroleum and Valero Energy, along with AI stocks, have aided the rise in the S&P this week to over the 7800 mark at one point. The Dow was lower week-on-week, the S&P was higher while NASDAQ was flat. The USD is lower as there are expectations for the Fed to implement at least a minor rate increase by the end of this year based on a weak labor market and inflation holding.

Looking Ahead

While the US and Iran debate who actually controls the Strait of Hormuz, Persian Gulf petrostates are looking for existing alternative routes and proposing entirely new projects. 3-5 years from now, a much smaller amount of crude and refined products may pass through the Strait especially if there are fees for transit. In the short term, the level of attacks in the region and confirmed vessel traffic will dominate the market. The overall demand picture will change once the peak summer travel season is over in about (3) weeks. Phillips66/Kinder-Morgan/HF Sinclair announced a $5 billion pipeline project that will deliver refined products from West Texas to California which has lost (2) refineries this year.

Natural Gas – Fundamental Analysis

Despite continuing production increases, hotter weather and peak LNG production boosted September NYMEX Henry Hub Natural Gas futures this week although they traded in a tight, $0.15 range. A larger-than-forecasted storage injection capped any rally. The week’s High was Wednesday’s $2.85/MMBtu while the Low was Monday’s $2.70. The Henry Hub contract still remains in a 5-week downtrend. Natural gas demand this week has been estimated at about 115 Bcfd with power consumption increasing while supply was thought to be 113 Bcfd. LNG exports have topped-out at 18.0 Bcf while exports to Mexico were lower at 6.0 Bcfd. A heat wave continues across the EU and UK with wildfires in several areas.  In the UK, natural gas prices at the NBP were most recently higher at $20.17/MMBtu. Dutch TTF futures were also higher at $20.47/MMBtu.  Asia’s “JKM” was quoted at $21.20/MMBtu as Asian and European markets are essentially competing for the same shipments. The EIA’s Weekly Natural Gas Storage Report indicated an injection of +36 Bcf vs. a forecast of +30 and a 5-year average of +33 Bcf.  Total gas in storage is now 3.153 Tcf, now at -0.8% below last year and 6.7% above the 5-year average.

Looking Ahead

The 8–14-day forecast looks favorable for natural gas-fired generation for most of the US. While global LNG prices are strong, the US is currently exporting at maximum output. Look for supply surpluses to continue which will continue to increase storage injections.