Oil & Gas Prices - Oct 7

[dan_s]

MY TAKE: WTI has moved back into the trading range of $75 to $85, which I believe is the "Right Price" for oil, based on the fundamentals. U.S. and OECD Petroleum Inventories are lower than normal for this time of year and U.S. oil production has flatlined, unable to get back to the peak of 13.3 million bpd set in December, 2023.

At the time of this post WTI was up $2.57 to $76.95 fueled by short covering, a major hurricane in the center of the Gulf of Mexico and increasing tensions between Israel and Iran's proxies in the Middle East.

HFI Research Note this morning:
Not long ago, sell-side firms were jumping over one another trying to downgrade their oil price forecasts. Bloomberg, FT, Reuters, and WSJ all jumped on the "OPEC+ is going into a market share war" story, and hedge funds went record short. But like I wrote in the WCTW titled, "Extremes, Always." The oil market almost always reaches the extreme. In this case, the extreme was so obvious, it prompted me to contemplate just how long oil futures I wanted to be.
But fast forwarding to today and +$8/bbl in WTI later, it's not so extreme anymore. The investment community is finally realizing that while 1) 2025 oil balances may seem weak on paper and 2) OPEC+ does have uncertainty in H1 2025, the reality is not so bad...

Trading Economics
WTI crude oil futures climbed over $76 per barrel on Monday, a six-week high following last week's 9.1% gain, as tensions in the Middle East escalate. Investors are focused on whether Israel will respond to last week's Iranian missile attack. Fears of broader conflict in the region persist, especially as Israel continues military actions in Gaza and Lebanon. Still, President Biden has discouraged strikes on Iran’s oil fields, stating alternative actions should be considered. Iran's oil output, now near full capacity, could be at risk. Despite these geopolitical concerns, questions about global demand, particularly from China, remain, alongside ample oil supply. China’s government is expected to unveil new economic stimulus measures, which could influence demand. Meanwhile, Saudi Arabia raised oil prices for Asian buyers but reduced prices for US and European markets.

Natural Gas
US natural gas futures fell more than 4% to below $2.75/MMBtu on Friday, retreating from a three-month high of nearly $3 due to ongoing surplus supply. The Energy Information Administration (EIA) reported that utilities added 55 billion cubic feet (bcf) of gas into storage for the week ending September 27, below analyst expectations of 57 bcf, and significantly lower than the injection of 87 bcf during the same week last year. This brought US gas inventories to 3,547 Bcf, narrowing the five-year surplus to 5.7%. Despite recent price declines, lower supplies heading into winter could spark price recovery, especially as drilling activities have slowed significantly this year. Moreover, natural gas demand is getting a boost from the resolution of a significant longshoreman strike, alleviating concerns about decreased demand from petrochemical production. However, clearing the cargo backlog at East Coast and Gulf Coast ports will take time.