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 lower this week overall as US/Iran talks muddle along and as a surprise US inventory gain was reported. Also, Iran and Oman are reported to be working on an administrative deal for the future operation of the Strait of Hormuz. WTI’s High was Tuesday’s $82.33/bl. for September while the Low was Wednesday’s $74.25. October Brent crude hit its High also on Tuesday at $86.35/bl. with the low on Wednesday at $78.10. Both grades settled lower on the week. WTI is about ($7.00) down over the last (2) weeks. The WTI/Brent spread has now widened to ($5.30).

US/Iran relationships remain strained leading to pessimism regarding a long-term peace deal. While President Trump claims a deal is at hand, Iran continues to attack some of its neighboring petrostates and has told Persian Gulf countries to demand that the US halt its hostilities towards Iran or these will continue. Talks regarding the future operations of the Strait of Hormuz are being conducted between Iran and Oman and indicate a possible “administrative” fee of up to 7% of the value of the cargo. Presently, Iran’s proposal would block US and Israeli-flagged ships from passage. Transits through the Strait of Hormuz were at their lowest levels this week since June as there have been attacks by Iran on both crude tankers and cargo ships as only (33) vessels made passage vs. (55) last week. Tanker-tracker, Kpler identified (6) crude tankers making the journey this week.

Due to concerns regarding passage through the Strait of Hormuz and now, Bab al-Mandeb, Saudi Arabia is considering a new route for crude exports which would utilize the Red Sea, the Mediterranean Sea and passage around the Cape of Good Hope in Africa. This could add as much as +$5.00/bl. to the cost of crude delivered to Asia.  Despite its East/West pipeline which can deliver oil to the Red Sea, tankers there have to pass south through the Bab al-Mandeb Strait which Houthi rebels can block. And there is no guarantee that Hormuz will open permanently as well as the prospect of some sort of fee to be imposed.

 Refined product shortages have also led to higher crude prices as Ukraine continues to hit refineries in Russia, a key exporter of diesel and gasoline. Global inventories are also shrinking. In the US, refiners are realizing historically high “crack” margins while pump prices remain elevated above the $4.00/gal. level. The US will extend the Jones Act waivers which have helped with the shipping of refined products.

 The Energy Information Administration’s Weekly Petroleum Status Report indicated that commercial crude oil inventories for last week increased +2.5 million bl. to 407 million and -7.0% below the 5-year average. The API had forecasted a -2.7 million bl. draw while analysts expected a -1.2 million change. Total motor gasoline inventories decreased by -1.6 million bl. to 210 million bl. and are -7% below the 5-year average. Distillates decreased -3.5 million bl. to 107 million bl. and -12% below the 5-year average. Refinery utilization last week was 96.5%  vs. 96.6% the week before representing a decrease of -180k bld. to 17.2 million bld. Gasoline demand was 9.0 million bld. vs. 9.0 million bld. the prior week.  Crude imports were 6.2 million bld. vs. 5.7 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 7.9 million bld. vs. 8.0 million bld. The SPR was -2.8 million bl. to 305 million bl. Stocks at Cushing, OK were +2.1 million bl. to 21 million bl. or 28% 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 unchanged last week at 588 vs. 539 last year.

 Venezuela averaged 1.0+ million bld. in June while estimates to restore production to historical levels will take (10) years and $100 billion. Meanwhile, Chevron plans to increase its output there by up to 50% by 2028 through reinvestment of cash flows from operations. And OPEC+ members agreed to a final output increase of +188k bld. for September which would totally unwind the -1.65 million bld. cuts announced in 2023.

 Gasoline prices are now $4.04/gal., -$0.036/gal. from last week, +$0.25/gal. from last month and +$0.87/gal. from last year.

The labor market lost -23k jobs last month vs. a forecast of +83k. Additionally, revisions to both May and June payroll numbers represented a further loss of -103k for that 6-day period. Unemployment dipped to 4.1% from 4.2% as more people dropped out of the job market.  The private sector did add +30k jobs while the federal government shed -53k. The Federal Reserve must now weigh current inflation vs. a need for job creation in its interest rate policy. Wholesale inventories for June rose +0.2% vs. a forecasted +0.3% while sales fell -3.0%. The Dow set a new record high on Wednesday, slipped back Friday but still settled higher on the week. Meanwhile, the S&P reached a new high on Friday, and the NASDAQ was higher week-on-week but lower than its record high from May. The USD has fallen throughout the week and may have provided some support for oil prices late week. Gold saw a resurgence this week and is now at mid-June levels.

Looking Ahead

The “broken record” continues as there is still no clarity on a US/Iran peace accord while Iran and Oman discuss the future of the Strait of Hormuz. Israel continues to attack Hezbollah positions in southern Lebanon which Iran has stated must cease before they will agree to any settlement. The first “greenfield” oil refinery to be built in the US since 1976 was announced this week. The 168k bld. complex will be in Brownsville, TX and will be designed to process the lighter shale oil which comprises upwards of 70% of US domestic production. With each passing day this month, we do move closer to the end of the peak summer travel season on Labor Day Weekend. However, refined product prices should remain elevated until then.

Natural Gas – Fundamental Analysis

Despite warmer weather, September NYMEX Henry Hub Natural Gas futures traded lower this week on a larger-than-forecasted storage injection as a supply surplus hangs over the market and September normally brings cooler temperatures. The week’s High was Monday’s $2.80/MMBtu while the Low was Friday’s $2.62. The Henry Hub contract has now been on a 4-week downtrend. Natural gas demand this week has been estimated at about 108 Bcfd with power consumption below expectations while supply was thought to be 113 Bcfd. LNG exports have topped-out at 18.1 Bcf while exports to Mexico were 8.4 Bcfd  In the UK, natural gas prices at the NBP were most recently higher at $18.20/MMBtu. Dutch TTF futures were also higher at $18.90/MMBtu.  Asia’s “JKM” was quoted at $21.15/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 +33 Bcf vs. a forecast of +31 and a 5-year average of +23 Bcf.  Total gas in storage is now 3.117 Tcf, now at -0.4% 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 along the southern tier but below-normal temperatures are predicted for the Northeast. While global LNG prices are strong, the US is currently exporting at maximum output. Look for supply surpluses to continue.