Crude Extends Decline as Trump Gives Talks More Time; Gas Pressured by Compounding Bearish Fundamentals

WTI extends decline as Trump gives Iran talks more time

• The WTI prompt-month contract fell $1.24 to $81.37/Bbl Tuesday morning (7:30 AM CT)
• President Trump said he paused further strikes to give negotiations another opportunity, according to Axios
• Despite growing optimism around a potential diplomatic resolution, regional tensions remain elevated after Saudi Aramco shut its 400 MBbl/d Jizan refinery on July 27 following a Houthi attack over the weekend, according to an IIR note reviewed by Reuters
• • The refinery has exported an average of more than 200 MBbl/d over the past three months (Kpler) and is expected to return to service by August 15
  • The Jizan outage could further tighten refined-product markets as Ukrainian drone attacks have also forced Russian refineries to reduce runs
• Bloomberg reported tanker traffic through the Strait of Hormuz remained subdued early Tuesday, although some vessels may have crossed with their transponders disabled
• • “If this move lower is to be sustained, we will need to see a recovery in flows through the strait,” ING analysts said

Gas inches down as power demand falls below 50 Bcf

• Natural gas is down -4.1c to $2.726/MMBtu (As of 07:30 AM CDT)
• Power demand fell to 149.1 Bcf/d this morning as temperatures fell below the 10-year average (Criterion)
• • CDDs are expected to bottom around 13 tomorrow before trending around 15 throughout the first couple weeks of August
• CWG is forecasting CDDs at 351 for the month of August, 11.3 CDDs per day, which is right at the 10-year average for the month of August
• • With the first week coming in hotter, upside risk could be into the mid-360s
  • With gas storage sitting so far above the 5-year average and Freeport expected to lose roughly 40 Bcf over a month and a half long period, Storage balances appear relatively strong heading into Winter

Permian supply surge fuels upside risk for South Central (S&P)

• Permian gas production surged to 24.9 Bcf/d in July
• Record breaking Permian gas production and weaker feedgas demand along the Texas Gulf Coast could further expand the South-Central storage surplus heading into this Winter
• South Central storage is at a 55 Bcf deficit to last year and a 36 Bcf surplus to the five-year average for the week ending July 17