Oil & Gas Prices - Sept 8

[dan_s]

Opening Prices:
> WTI is down $2.62 to $37.15/Bbl, and Brent is down $1.84 to $40.17/Bbl.
> Natural gas is down 8.4c to $2.504/MMBtu.

Closing Prices:
> WTI prompt month (OCT 20) was down $3.01 on the day, to settle at $36.76/Bbl.
> Also, NG prompt month (OCT 20) was down $0.188 on the day, to settle at $2.400/MMBtu. < I think the ngas selling was just a reaction to the overall market and oil selloff. The U.S. gas market is going to tighten up rapidly in Q4.

This is one of those "Chicken Licken / The Sky is Falling" days.

On September 7 Reuters reported the global economy is likely not headed for any major slowdown due to COVID-19 but piled-up storage and uncertainty over China's oil demand cloud oil markets' recovery, an official with International Energy Agency (IEA) said. Keisuke Sadamori, IEA director for energy markets and security, told Reuters the outlook for oil was in the midst of either a second wave or a steady first wave of the coronavirus. "There is an enormous amount of uncertainty, but we don't expect any additional serious slowdown (in the global economy) in the coming months." "Even though (the market is) not expecting real robust (demand) growth coming back soon, the view on demand is more stable compared with three months ago," he said in an interview.

The IEA cut its 2020 oil demand forecast in its monthly report on August 13, warning that reduced air travel would lower global oil demand by 8.1 million b/d. The Paris-based agency downgraded its outlook for the first time in three months, as the epidemic continues to wreak economic pain and job losses worldwide. With Brent crude registering its first weekly loss since June on Friday, markets have grown increasingly nervous over demand, poor refining margins and slow economic growth, reducing incentives to draw crude and products from abundant stocks. "It doesn't seem like a massive stock draw seems to be happening yet," Sadamori said. "We are not seeing a robust pickup in refining activity, and jet fuel is the big problem," he added. China, the world's largest crude importer, emerged from an economic lockdown sooner than other major economies and used its financial muscle to make record oil imports in recent months, a rare bright spot amid global demand destruction. But geopolitical tensions could call into doubt "to what extent it can be sustainable and last long", Sadamori said. "There are so many uncertainties with regard to the Chinese economy and its relationship with key industrialized countries, with the U.S. and these days, even Europe. It's not such an optimistic situation - that casts some shadow over the growth outlook".

On September 7 Reuters reported oil prices fell on Monday after Saudi Arabia made its deepest monthly price cuts to supply for Asia in five months and as uncertainty over Chinese demand clouds the market's recovery. Brent crude was trading at $42.03 a barrel, down 63 cents or 1.5%, after earlier sliding to $41.51, its lowest since July 30. West Texas Intermediate U.S. crude fell 67 cents, or 1.7%, to $39.10 per barrel after hitting $38.55, its lowest since July 10. "The mood has turned somewhat pessimistic in the second half of last week and the immediate risk is skewed to the downside," said oil broker PVM's Tamas Varga. The world's top oil exporter, Saudi Arabia, cut the October official selling price for Arab Light crude it sells to Asia by the most since May. "The decrease was interpreted by the markets as a sign that the demand recovery in the region, home to the second and third largest oil consumers, is running out of steam," said Rystad Energy analyst Paola Rodriguez-Masiu. China, the world's biggest oil importer which has been supporting prices with record purchases, slowed its intake in August and increased its products exports, customs data showed on Monday.

[dan_s]

Aegis Energy comments below sent to their clients at 11AM CT.

WTI decline of more than $3 led by Saudi Arabia’s shrinking official selling prices

It’s a complicated day for oil, with multiple bearish factors stacking up over the long weekend.
Chief among the bearish forces is a drop in Saudi Arabia’s official selling prices (OSP) for October. The Kingdom’s SOP for OSP is to lower its offer price relative to other benchmarks to stir up buying interest. Over the weekend, these OSPs were reset by region; in Asia, Saudi’s Arab Light crude versus Oman/Dubai was lowered by $1.40/Bbl, per Platts. AEGIS notes such an aggressive change in sales price could set off a chain of offers from competing crudes.

Weak equities markets (the S&P 500 index was down near 2% as of this writing) are undoubtedly adding to the pressure on crude. It’s risk-off across the board. Many may scream “demand!” not knowing the root cause. Whether its concern about the pace of economic recovery or just simple correction, the result is widespread selling of assets related to price inflation.

Last, the U.S. dollar is gaining in value after sudden losses during August. The formerly weakening dollar was likely supporting oil prices for a month before reversing course last week. Our recent commentary here explains the effect of the USD.

We remain concerned about OPEC’s (mostly Saudi Arabia) choices regarding how fast the cartel returns it’s 6-9 MMBbl/d of spare capacity in the next year. Rhetoric from OPEC has suggested a return of supply as demand recovers.

If OPEC estimates demand recovery incorrectly, it risks oversupplying the market and suddenly yanking back prices in an attempt to solve the spot-market oversupply.
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On the bullish side, we should see EIA report another large draw from U.S. oil inventories thanks to Hurricane Laura shut-ins during the week ending Sept 4 that are still not all restored.

[k1f]

How does this (Saudi) explanation relate to the 7.19% drop in natural gas?

[dan_s]

Around 1:15 PM CT the technical indicators for WTI went from a Strong Sell to a Strong Buy with 20 minutes. Not sure what caused it, maybe just shorts covering to harvest their gains for the day.