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

Last week’s “too high, too fast” rally ran into headwinds this week on optimism regarding disrupted Saudi Arabia supplies. Additionally, a key technical indicator was breached signaling prices had moved considerably north of their recent average. WTI’s High was Tuesday’s $107.75/bl. for October while the Low was Friday’s $99.10. October Brent crude hit its High on Friday at $109.80/bl. with the low on Thursday at $101.55. WTI is higher on the week, matching levels not seen since mid-May while Brent is slightly lower than last Friday. The WTI/Brent spread has now tightened to ($4.05).

 Saudi Arabia is assessing the damage to its East-West pipeline. While some operations may resume, the kingdom estimates a return to full capacity could take 6-8 weeks barring further attacks by Iran. In the meantime, they are considering the use of ship-to-ship transfers and US Navy escorts to move some oil past the Strait of Hormuz on the southern end near Oman. That announced strategy helped put a cap on the rally that started last week. Meanwhile, Iranian leadership has now allegedly stated that the Strait of Hormuz will not be opened 100% until President Trump leaves office in January 2029. Tanker-tracker, Kpler, estimated that about 10 million bld. did make it through the Strait this past week but that is still down from the 17-20 million bld. pre-war level.

 Offsetting the large decline in oil supplies, the IEA has reduced the 2026 demand picture by -2.5 million bld., the biggest crude demand destruction since the 2020 pandemic and the second worst in (60) years’ time.

 It was widely known that last year, China continued to stockpile oil for reserve purposes which served to hold prices higher than they may have otherwise been. That, along with a continued diversification of their energy portfolio, allowed China to purchase about 23% less oil during the Iran War thus far. This, too, has helped keep a lid on global oil prices with Goldman Sachs analysts estimating about a $10/bl. lower impact. China has also expanded its refining capacity which has helped temper refined product prices as well.

 The Energy Information Administration’s Weekly Petroleum Status Report indicated that commercial crude oil inventories for last week decreased by -0.64 million bl. to 423.4 million and +1% above the 5-year average. The API had forecasted a -7.4 million bl. draw while analysts expected a -1.4 million change. Total motor gasoline inventories increased by +0.795 million bl. to 207.7 million bl. and are -6% below the 5-year average. Distillates increased +1.6 million bl. to 108 million bl. and -14% below the 5-year average. Refinery utilization last week was 96.8% vs. 97.8% the week before representing a decrease of -260k bld. to 17.3 million bld. Gasoline demand was 8.8 million bld. vs. 8.6 million bld. the prior week.  Crude imports were 7.1 million bld. vs. 6.8 million bld. the week before. Exports of crude were 4.8 million bld. vs. the prior week’s 3.4 million bld. Exports of refined products were 7.6 million bld. vs. 8.4 million bld. The SPR was -0.2 million bl. to 285 million bl. (the lowest level since 1982). Stocks at Cushing, OK were -340k bl. to 21.5 million bl. or 30% of capacity. Production last week was 13.94 million bld. vs. 13.95 million bld. the prior week and 13.5 last year. The US oil & gas rig count was +3 this week at 591 vs. 539 last year with +2 in oil, +1 in natural gas.

 U.S. E&P company, Continental Resources announced an MOU with PDVSA to develop a major oil block in the Oronoco Belt in Venezuela. Continental has been the major player in the Bakken Shale in North Dakota.

 Gasoline prices are now $4.295/gal., +$0.15/gal. from last week, +$0.29/gal. from last month and +$1.10/gal. from last year. Labor Day Weekend gas prices were the highest on record. Diesel prices hit a new all-time high this week of $6.055/gal. vs. $3.705 last year. Russia just extended its ban on diesel exports given the continued strikes on its refineries by Ukraine. Russia has been the world’s No. 3 exporter of diesel in the past. Meanwhile, U.S. farmers are being hurt by the higher diesel prices which will greatly impact the upcoming harvest season.

The U.S. Federal Reserve made a move Wednesday to curb inflation by raising interest rates by +0.25%, the first increase in (3) years’ time. Further increases are expected should inflation not recede as a result of this action. However, unless energy prices subside, it’s highly likely that both the CPI and PCE will not decline. Additionally, analysts are now pointing to the rising cost of microchips as impacting the cost of consumer electronics as hyper scaling datacenter builders compete over a dwindling supply. US industrial production held flat from July to August while analysts expected a +0.3% increase. Pending home sales increased slightly last month while new housing starts dropped. Manufacturing output declined -0.3% with the production of durable goods down -0.5%. However, all (3) major US stock indexes were lower week-on-week. The USD is only slightly lower on the week as is gold. Retails sales for August rose +1.2% vs. an expected +0.8%. The Dow and S&P are lower week-on-week while the tech-heavy NASDAQ is higher.

Looking Ahead

It’s hard to tell if Iran is becoming more desperate as they suffer economic pressures or if they are serious with their new, longer-term stance on this conflict especially, with regard to the Strait of Hormuz. There appear to have been no diplomatic talks this past week. Certainly, the addition of the Yemeni-based Houthis as an ally has strengthened Iran’s position in the region. Markets will be looking for progress on the repairs of the East-West pipeline as well as the success of ship-to-ship transfers. In the US, the post summer peak demand season is already being seen in the reduced refinery utilization this week. Production of diesel will likely remain high, however. 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.

Natural Gas – Fundamental Analysis

October NYMEX Henry Hub Natural Gas futures moved higher this week on extended summer heat, and  a slightly lower-than-forecasted storage injection was reported.  The week’s High was Wednesday’s $2.98/MMBtu while the Low was Friday’s $2.85. Natural gas demand this week has been estimated at about 70 Bcfd with a large drop in power generation while supply was thought to be 113 Bcfd. LNG exports were 18.7 Bcf while exports to Mexico were 7.3 Bcfd. In the UK, natural gas prices at the NBP were most recently a little lower at $26.30/MMBtu. Dutch TTF futures were also lower at $25.75/MMBtu.  Asia’s “JKM” was quoted at $25.20/MMBtu as Asian and European markets are essentially competing for the same shipments. (Qatar was able to move a handful of LNG cargoes through the Strait of Hormuz this week by also using the ship-to-ship transfer system.) The EIA’s Weekly Natural Gas Storage Report indicated an injection of +44 Bcf vs. a forecast of +49 and a 5-year average of +74 Bcf.  Total gas in storage is now 3.298 Tcf, now at -3.6% below last year and 3.7% above the 5-year average.

Looking Ahead

LNG exporter, Caturus, plans to expand its Commonwealth facility in Cameron Parish, LA by (5) new trains after reaching long-term agreements with several buyers. Heading into the last part of September, temperatures are predicted to moderate with extreme South TX remaining above-normal. The storage surplus above the 5-year average is shrinking so we need to see continuing increases in weekly injections. There are only (7) weeks remaining in the storage injection cycle.