Crude Falls as US-Iran Talks Raise Hopes for Hormuz; Gas Gives Back Gains Associated With MXP Outage

Crude falls as US-Iran talks raise hopes for Hormuz

• The WTI prompt-month contract fell $1.94 to $92.67/Bbl Friday morning (7:30 AM CT)
• Crude moved lower as the US and Iran discussed a phased agreement that would reopen the Strait of Hormuz and lift the American blockade on Iranian ports
• • Iranian Foreign Minister Abbas Araghchi said Tehran submitted a proposal to Washington that included conditions similar to those outlined in the memorandum of understanding reached in June
  • “Even if we saw some diplomatic breakthrough, that doesn’t immediately restore disrupted flows, normalize shipping, boost dwindling inventories, or improve confidence,” said Emily Ashford of Standard Chartered Bank
• Meanwhile, the premium required to secure crude supplies at Cushing rose to its highest level in Bloomberg data going back to 2017
• • The WTI cash roll, which reflects the cost of shifting physical positions from one delivery month to the next, surged above $7/Bbl on Thursday
  • Cushing inventories have recovered from critically low levels but remain near their lowest seasonal level in more than a decade
  • US refiners are processing record volumes of crude for this time of year, while overseas demand for American barrels remains elevated

Gas gives back some gains attributed to MXP force majeure

• Natural gas is down -9.8c to $3.199/MMBtu (As of 07:30 AM CDT)
• Gas prices skyrocketed nearly 30c yesterday in the prompt month following a force majeure on TCO
• • TC Energy experienced an unexpected mechanical issue on its MXP system between the Mt. Olive Compressor Station and Sauders Creek Regulator Station in West Virginia, restricting Appalachia takeaway
  • They initially estimated 1.8 Bcf/d would be offline until they could repair the pipe, but today’s estimates lowered this to 1.4 Bcf/d
  • They extended the outage through the weekend with no timeline on full capacity
• Some of the price action could potentially be attributed to short covering, as non-commercial traders have built substantial short positions in recent weeks, according to CFTC data

EIA reports 53 Bcf build in inventories, tightening the storage level to the 5 year average

• The build was larger than the average analyst estimate of 51 Bcf/d
• The build tightened the storage level to the 5 year average further, which is now at a surplus of just 95 Bcf
• This is a large convergence from just a month ago for week ending Aug 20, when storage was at a 185 Bcf surplus