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

Iran’s new attacks on shipping, concerns over Gulf of Mexico production outages associated with Hurricane Isaias and a large inventory draw moved prices higher this week. But Trump’s announcement to hold off on military action against Iran until after the mid-term election kept a lid on the rally.  WTI’s High was Thursday’s $93.20/bl. for November while the Low was Tuesday’s $86.85. October Brent crude hit its High on Thursday at $105.90/bl. with the low on Tuesday at $97.05. Both grades settled higher on the week. The WTI/Brent spread has blown out to ($12.60) largely on the increased costs of shipment for Dated Brent (physical, flowing volumes).  

Iran has fired missiles again at ships attempting to traverse the Strait of Hormuz. As a result, what had been daily shipments of crude rising to about 12.3 bld. on the 4^th fell to 2.3 million bld. on the 7^th per tanker-tracker Kpler. Additionally, Houthi rebels continue to attack Saudi Arabia while claiming control of the Bab el-Mandeb Strait. An ancillary result of increased attacks on shipping in the region is a rise in both the daily tanker rates and the insurance to cover the cargoes. Saudi Arabia’s East-West pipeline is operational again with estimated flows of about 5.8 million bld.

Meanwhile, the G7’s pledge to release 100 million bl. of oil and diesel is, in reality, just expedited flows of previously-pledged volumes. The IEA reported that about 325 million bl. of the 400 million bl. pledged in March has been delivered.  Members are believed to still have as much as 1.1 billion bl. in strategic reserves. Still, much of the refining capacity in the Persian Gulf region remains offline while Ukraine just hit another major refinery in Russia.

President Trump stated that the U.S. will not carry out military attacks against Iran until at least after the mid-terms, citing “productive” talks taking place between the two countries. Iran, for its part, has “drawn a red line” regarding their uranium enrichment program. The country’s atomic energy chief has indicated Iran will neither halt its program nor surrender its existing stockpile. The U.S. stance in negotiations is enrichment needs to end, and the stockpile needs to be turned-over to a third-party country.

Hurricane Isaias developed quickly in the Gulf of Mexico this week but steered east of the bulk of offshore oil & gas platforms and the TX/LA coast refining corridor. With landfall expected near the FL Panhandle and Eastern AL, some disruption of refining could occur in MS and AL. The Marine Minerals Administration is estimating about 1.3 million bld. is currently shut-in in the GOM after standard evacuations of platforms. Restoration of production should resume within about (48) hours after landfall.  

The Energy Information Administration’s Weekly Petroleum Status Report indicated that commercial crude oil inventories for last week decreased by -3.8 million bl. to 424 million and +1% above the 5-year average. The API had forecasted a -1.8 million bl. draw while analysts expected a -1.7 million change. Total motor gasoline inventories increased by +380 bl. to 204.7 million bl. and are -6% below the 5-year average. Distillates decreased -40k bl. to 105 million bl. and -12% below the 5-year average. Refinery utilization last week was 92.7%  vs. 92.5% the week before representing an increase of -220k bld. to 16.5 million bld. Gasoline demand was 8.8 million bld. vs. 8.7 million bld. the prior week.  Crude imports were 6.8 million bld. vs. 5.7 million bld. the week before. Exports of crude were 4.8 million bld. vs. the prior week’s 3.6 million bld. Exports of refined products were 8.1 million bld. vs. 7.5 million bld. The SPR was -780k bl. to 283 million bl. (the lowest level since 1982). Stocks at Cushing, OK were  +440k bl. to 23.7 million bl. or 31% of capacity. Production last week was 13.98 million bld. vs. 13.96 million bld. the prior week and 13.6 last year. The US oil & gas rig count was +5 this week at 603 vs. 547 last year with +6 in oil, -1 in natural gas.

Gasoline prices are now $4.37/gal., -$0.027/gal. from last week, +$0.15/gal. from last month and +$1.26/gal. from last year. Diesel prices are $6.29/gal., -$0.08/gal. from last week, +$0.34/gal. from last month and +$2.60/gal. from last year. President Trump has signed a waiver to allow the use of “red dye” diesel by anyone. The regular diesel used largely in agriculture and heavy construction is exempt from the current federal highway tax of $0.244/gal. Dye is added to detect its illegal usage. There will be no impact on the wholesale price of diesel and the red-dyed diesel is not widely available. This action could actually raise the price of red-dyed diesel for farmers and others.

Consumer sentiment last month fell to 46.3 from September’s 48.1. Analysts were expecting 48.0. Wholesale inventories rose +0.5% last month, below an expected +0.7%. Claims for unemployment benefits fell by -2k last week to 197k vs. a 200k forecast. All (3) major US stock indicators are higher this week with the rally in tech stocks. The USD made gains for the 4^th-consecutive week on expectations of further rate increases by the Fed. Gold is also up on the week.

Looking Ahead

While the US has pledged no attacks until after the Mid-term elections, Iran has stepped-up its offensive on shipping. And the hardline stance on their uranium will make any negotiations unlikely to succeed. Once Hurricane Isaias makes landfall, GOM platforms will be re-manned, and any damage will be assessed. The same holds true for the refineries in MS & AL. Hurricane season is not officially over until November 30^th and some of the strongest storms have occurred in October. Both the IEA and OPEC will issue their monthly reports next week which should provide some clarity on the global supply/demand balance for crude and refined products. With fall upon us, any cooler-than-normal weather could result in an increase in heating oil consumption along the Northeast corridor, making demand for distillates that much stronger.

Natural Gas – Fundamental Analysis

With the start of October, the latent summer heat has begun to dissipate across much of the country, lowering demand for gas-fired generation. A larger-than-expected storage injection also added bearish sentiment to November NYMEX natural gas futures prices this week. The week’s High was Thursday’s $3.30/MMBtu while the Low was Monday’s $2.997. Natural gas demand this week has been estimated at about 106 Bcfd with a large drop in power generation while supply was thought to be 109 Bcfd. LNG exports were 18.6 Bcf while exports to Mexico were 7.0 Bcfd. In the UK, natural gas prices at the NBP were most recently higher at $27.40/MMBtu. Dutch TTF futures were also higher at $25.65/MMBtu.  Asia’s “JKM” was quoted at $26.40/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 +85 Bcf vs. a forecast of +79 and a 5-year average of +96 Bcf.  Total gas in storage is now 3.500 Tcf, now at -3.6% below last year and 2.0% above the 5-year average.

Looking Ahead

Isaias represents a “dual-edged sword” for natural gas. GOM platform shut-ins reduce supply while onshore torrential rainfall reduces power generation demand and high winds can halt LNG shipments. The EU’s natural gas storage now stands at just 73% with season-ending projections of 29% or 10% with a harsh winter. Qatar is said to have several LNG tankers at the ready if conditions became safe for passage in the region. It is estimated that it will take them about 3-5 years to repair the damage to their LNG facilities caused early in the war. The near-term forecast calls for seasonal weather which could mean some natural gas burn in northern states. At 3.5 Tcf with only (4) weeks remaining in the official storage injection season, it would take 125 Bcf per week to hit the 4.0 Tcf mark by November 1^st.