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

Several factors whipsawed crude prices this week with WTI seeing a ($12/bl.)Hi/Lo spread. Varying accounts of flowing oil, ongoing infrastructure attacks and sparse diplomatic efforts provided a great deal of market uncertainty. WTI’s High was Monday’s $101.10/bl. for October while the Low was Wednesday’s $88.70. October Brent crude hit its High on Thursday at $108.25/bl. with the low on Tuesday at $97.35. WTI is down on the week while Brent is essentially flat. The WTI/Brent spread has blown out to ($11.70). Analysts attribute this anomaly to a possible US diesel export ban making the domestic crude less desirable.

Saudi Arabia reported that flows in their East-West pipeline have resumed. However, Houthi rebels continue their strikes against Saudi Arabia which now includes attacks near Riyadh.  The Yemeni-based rebel group has also targeted Saudi Aramco facilities at the port of Yanbu, the terminus for the East-West oil pipeline where it is loaded for export. The Kingdom’s military has been able to intercept several missiles launched by the Houthis. France has promised to send varied aid to help protect this key port and refinery there. Both the Saudis and Oman have appealed to Washington to keep the economic and military pressure on Iran even if the Iranians wish to start diplomatic talks again. Qatar is proposing that negotiations begin again as soon as next week in Oman. Some sources are indicating that Iran would consider opening the Strait of Hormuz if the US would rollback the naval blockade. This despite the strong words of defiance spoken by the leaders of both Iran and Israel at the U.N. this week.

Even with the continuing attacks, an estimated 5.5 million bld. of oil has been moving out of Yanbu and from U.A.E’s Fujairah port in the Gulf of Oman. However, that is down from June’s 7.8 million bld. And the ship-to-ship transfers utilized are very costly. Meanwhile,  the IEA reported that global oil inventories have dropped by -507 million bl. since the start of the Iran war or about -2.8 million bld. Estimates for August are another -95 million bl. decline.

The Energy Information Administration’s Weekly Petroleum Status Report indicated that commercial crude oil inventories for last week increased by +3.0 million bl. to 426 million and +2% above the 5-year average. The API had forecasted a -1.8 million bl. draw while analysts expected a -0.5 million change. Total motor gasoline inventories increased by -1.7 million bl. to 206 million bl. and are -6% below the 5-year average. Distillates decreased -430k bl. to 107 million bl. and -12% below the 5-year average. Refinery utilization last week was 94%  vs. 96.8% the week before representing a decrease of -520k bld. to 16.8 million bld. Gasoline demand was 8.85 million bld. vs. 8.8 million bld. the prior week.  Crude imports were 5.9 million bld. vs. 7.1 million bld. the week before. Exports of crude were 3.3 million bld. vs. the prior week’s 4.8 million bld. Exports of refined products were 7.9 million bld. vs. 7.6 million bld. The SPR was -0.4 million bl. to 284.5 million bl. (the lowest level since 1982). Stocks at Cushing, OK were  +2.3 million bl. to 23.7 million bl. or 31% of capacity. Production last week was 13.94 million bld. vs. 13.94 million bld. the prior week and 13.5 last year. The US oil & gas rig count was +4 this week at 599 vs. 549 last year with +3 in oil, +1 in natural gas.

Gasoline prices are now $4.49/gal., +$0.02/gal. from last week, +$0.39/gal. from last month and +$1.33/gal. from last year. Diesel prices hit a new all-time high this week of $6.51/gal. vs. $3.69 last year. The Trump Administration is considering a ban on diesel exports in an effort to lower prices which has set up a major conflict between Ag-states, large consumers of diesel, and the oil-producing/refining states. And the UK and EU have made it clear that they are certainly opposed to cutting off their imports of US diesel supplies.

Orders for durable goods in August were even with July vs. an expectation that they would be -0.3% lower. Claims for unemployment benefits were 197k vs. a forecasted 201k. All (3) major US stock indexes are positive on the week due to the lower oil prices. The USD is higher also which does put downward pressure on crude prices. Gold is down.

Looking Ahead

Unfortunately, diplomatic signals in the Iran war are as mixed as ever. Iran very recently declared they would not open the Strait of Hormuz until both Trump and Netanyahu were out of office. Then, we hear rumors of a willingness to negotiate some type of settlement over the Strait. Markets will have to see if the proposed Oman summit does take place next week. Next, will France’s pledge to help Saudi Arabia defend the port city of Yanbu guarantee oil exports there? And will some type of regional coalition work against the Houthis and take back control of the Bab El-Mandeb Strait? Diesel ban or no diesel ban? As we move towards fall weather, sustained high diesel prices will translate into high heating oil prices which will impact the U.S. from Washington, D.C. to Boston. Homeowners and business interests may join the farmers pushing for a ban.

 Natural Gas – Fundamental Analysis

October NYMEX Henry Hub Natural Gas futures moved higher this week on pockets of extended summer heat, and a much lower-than-average storage injection which is reducing the surplus to the 5-year average. A reported natural gas pipeline outage also spooked the market for a day.  The week’s High was Thursday’s $3.32/MMBtu while the Low was Monday’s $2.82. Natural gas demand this week has been estimated at about 98 Bcfd with a large drop in power generation while supply was thought to be 109 Bcfd. LNG exports were 18.5 Bcf while exports to Mexico were 7.7 Bcfd. In the UK, natural gas prices at the NBP were most recently a little lower at $24.25/MMBtu. Dutch TTF futures were also lower at $25.10/MMBtu.  Asia’s “JKM” was quoted at $25.75/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 +53 Bcf vs. a forecast of +53 and a 5-year average of +95 Bcf.  Total gas in storage is now 3.351 Tcf, now at -4.2% below last year and 2.9% above the 5-year average.

Looking Ahead

Fall is here and temperatures will moderate into October. There is some heat out West in the 8-to-14-day forecast along with Florida. Space heating with natural gas or heating oil is not seen in the near-term. While natural gas storage volumes are above the 5-year average, weekly injections are falling below that average. With (5) weeks to go in the official storage injection season, 130 Bcf per week would have to be stored to hit 4.0 Tcf by November 1^st.