Crude Moves Lower as Traders Weigh Middle East Supply Risks; Gas Edges Higher as Production Slips

Crude moves lower as traders weigh Middle East supply risks

• The WTI front-month contract fell $2.11 to $103./Bbl Wednesday morning (7:30 AM CT)
• The conflict in the Middle East has escalated in recent days after Houthi attacks disrupted Saudi Arabia’s 7 MMBbl/d East-West pipeline, removing a critical alternative to shipping crude through the Strait of Hormuz
• • Saudi Aramco has since delayed oil deliveries to some European customers, prompting buyers to seek alternative supplies
• With the Federal Reserve’s FOMC meeting set to conclude today, analysts expect policymakers to raise interest rates later Wednesday as elevated crude and fuel prices add to concerns over global inflation
• Tentative signs of de-escalation have also emerged, with Reuters reporting that US officials met with Houthi representatives in Oman over the weekend
• Saul Kavonic of MST Marquee said oil prices are likely to remain elevated as “the situation in the Middle East remains on an escalatory path, with the market struggling to keep abreast of the threats to passage through the Red Sea and Hormuz, alongside the pipeline and shipping damage”
• Domestically, the API said US crude inventories rose by 7.1 MMBbl lasty week with official US government figures due later Wednesday

Gas edges higher on modest production losses

• Natural gas is up 5.1c to $2.97/MMBtu (As of 07:30 AM CDT)
• L48 dry gas production fell 300 MMcf/d day over day (Criterion)
• • The Northeast and South Central lead the production losses, both losing over 300 MMcf/d of production
  • Gains in the Rockies offset some of the losses overall
• L48 temperatures are expected to tick up in average over the next few days to around 76°F, before retreating slowly into the low 70s by the end of the month
• • Temperatures are forecast to be roughly in line with the 5-year average
• Rescom is worth monitoring again, as it reached close to 10 Bcf of demand yesterday as more parts of the L48 started to cool into heating demand (S&P)
• • It fell today back towards 8.8 Bcf/d, but is expected to climb back above 10 Bcf/d by the end of the month
  • Power remains the primary demand sector until we flip into HDDs

Global LNG demand expected to rise by approximately 19.3 Bcf/d by 2031

• In their latest market report, The IEF forecasted LNG to grow by 200 Bcm/y by 2031, which translates to roughly 19.3 Bcf/d of feedgas demand
• The US is expected to lead the globe in LNG exports, especially as Middle east tensions keep Qatar and UAE supply locked
• • Unlike crude, no alternative routes exist for LNG, leaving it more vulnerable to the Strait of Hormuz being closed