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

Confirmed attacks on vessels and reduced traffic, along with a large hurricane-related inventory draw, rallied crude prices this week. WTI’s High was Friday’s $101.80/bl.  while the Low was Monday’s $89.60. Brent crude hit its High on Friday at $110.00/bl. with the low on Monday at $102.30. Both grades settled higher on the week. The WTI/Brent spread has tightened to ($8.10).  

President Trump struck a deal for Russian diesel this week which represents a policy reversal by both countries. The US had sanctions in place over Russian exports while Russia itself has banned diesel exports from time-to-time due to the damage inflicted by Ukraine on its refineries. Analysts report that the volume of diesel in the deal would only represent about (12) days of supply in the U.S. and it is not new diesel being produced in Russia. It is production others won’t receive including the Russian people.

Iran struck two cargo ships and a crude tanker this week in a sign of escalation and desperation in the Persian Gulf region. This, despite Donald Trump’s pledge of no military action against Iran until after the mid-terms. The new rounds of direct vessel attacks have only served to increase shipping rates along with the routes taken and maritime insurance, all of which play into keeping prices high. Part of the shipping costs has to do with the ship-to-ship transfers designed to sneak through the Strait of Hormuz as more tankers are used to move a single cargo. Shipments of crude had averaged 13.9 million bld. last month or about 75% of the pre-war level. However, the recent hostilities have reduced the daily throughput down to just 2.9 million bld. according to tanker trackers. Refined product shipments remain at about -50% below pre-war volumes.

Meanwhile, Yemen-based Houthi rebels continue to send missile into Saudi Arabia including the Riyadh airport. The Saudis have engaged with the Houthis in Yemen including attacks on the capital city there. For its part, Saudi Arabia is looking at alternative routes to move its oil out of the Persian Gulf including utilizing a natural gas pipeline.

 The IEA stated this week that total release from member countries’ strategic reserves could total more than the 400 million bl. pledged back in March. Releases are now being accelerated and include refined products such as diesel. Crude and diesel prices rose nonetheless as Ukraine continues to target Russian refineries. JP Morgan estimates that last month’s diesel deficit was as much as 1.0 million bld. while other analysts believe the diesel shortages will last for months to come. The agency also reported that global onshore oil inventories are at their lowest level since 2016. September oil supply had rebounded to 102.3 million bld. but the recent escalation in attacks in the Middle East is reducing that figure. On the flip side, IEA estimates that global demand will be an average of -2.6 million bld. lower vs. last year due to higher prices for fuel.

 The Energy Information Administration’s Weekly Petroleum Status Report indicated that commercial crude oil inventories for last week decreased by -8.6 million bl. to 416 million and are now -3% below the 5-year average. The outages caused by Hurricane Isaias were the main reason for the large draw. The API had forecasted a -11.0 million bl. draw while analysts expected a +100k bl. change. Total motor gasoline inventories increased by +3.5 million bl. to 208 million bl. and are -4% below the 5-year average. Distillates decreased -2.5 million bl. to 102.6 million bl. and -12% below the 5-year average. Refinery utilization last week was 93.5%  vs. 92.7% the week before representing an increase of +135k bld. to 16.6 million bld. Gasoline demand was 8.4 million bld. vs. 8.8 million bld. the prior week.  Crude imports were 6.0 million bld. vs. 6.8 million bld. the week before. Exports of crude were 4.6 million bld. vs. the prior week’s 4.8 million bld. Exports of refined products were 7.4 million bld. vs. 8.1 million bld. The SPR held at 283 million bl. (the lowest level since 1982). Stocks at Cushing, OK were  +1.9  million bl. to 26.6 million bl. or 35% of capacity. Production last week was down -300k bld. to 13.7 million bld. vs. 14.0 million bld. the prior week and 13.6 last year. The US oil & gas rig count was flat this week at 603 vs. 548 last year with -3 in oil, +1 in natural gas and +2 misc.

 Gasoline prices are now $4.33/gal., -$0.04/gal. from last week, -$0.04/gal. from last month and +$1.21/gal. from last year. Diesel prices are $6.33/gal., +$0.04/gal. from last week, +$0.02/gal. from last month and +$2.68/gal. from last year. President Trump has signed a waiver to allow the use of “red dye” diesel by anyone.

  The CPI for September was 3.7% vs. a year earlier with “core” inflation +2.6% and energy at +5.2%. Meanwhile, “real” average weekly wages declined -0.5%. Wholesale inventories grew last month by +0.4%, in line with expectations while industrial production improved +0.7% vs. a forecasted +0.4%. While the Dow is higher week-on-week, the S&P and NASDAQ are lower on the inflation report and on a movement out of tech stocks into “safer” havens. The USD and gold are both lower this week.

Looking Ahead 

Iran appears to be lashing out in desperation by continuing to inflict damage in the Middle East along with the aid of the Yemeni Houthis. Global diesel supplies are in trouble while here in the US, fall has settled in which has already brought some cold to the heating oil-consuming region in the Northeast. The near-term forecast, however, indicates above-normal temperatures settling-in late month.

 Natural Gas – Fundamental Analysis

November NYMEX natural gas futures prices this week moved higher early on a brief cold snap in the Northeast and on a smaller-than-expected storage injection. Prices fell late week on the impending warmer weather. The week’s High was  $3.30/MMBtu on Tuesday and Wednesday while the Low was Friday’s $3.06. Natural gas demand this week has been estimated at about 104 Bcfd with while supply was thought to be 110 Bcfd. LNG exports were 18.0 Bcf while exports to Mexico were 7.0 Bcfd. In the UK, natural gas prices at the NBP were most recently higher at $28.20/MMBtu. Dutch TTF futures were also higher at $28.40/MMBtu.  Asia’s “JKM” was quoted at $26.53/MMBtu as Asian and European markets are essentially competing for the same shipments. Spain has managed to fully wean-off of Russian natural gas imports thanks to US LNG supplies which are now about 48% of the country’s needs. The EIA’s Weekly Natural Gas Storage Report indicated an injection of +67 Bcf vs. a forecast of +75 and a 5-year average of +90 Bcf.  Total gas in storage is now 3.567 Tcf, now at -3.9% below last year and 1.3% above the 5-year average.

Looking Ahead

Natural gas production remains fairly steady while normal fall heating consumption has not yet emerged across the country. LNG exports should stay strong given global demand. The storage surplus vs. the 5-year average continues to shrink. At 3.57 Tcf with only (3) weeks remaining in the official storage injection season, it would take 143 Bcf per week to hit the 4.0 Tcf mark by November 1^st.