Crude Extends Rally Despite Recovery in Middle East Flows; Gas Ticks Lower into Early Shoulder Season

Crude extends rally despite recovery in Middle East flows

• The WTI prompt-month contract rose $0.51 to $90.93/Bbl Thursday morning (8:15 AM CT)
• Crude futures extended gains despite reports that higher flows through the Strait of Hormuz have pushed Middle East crude exports closer to prewar levels
• The recovery could increase escalation risk by weakening Iran’s leverage and giving Tehran an incentive to renew pressure on global crude markets and the US
• • UKMTO reported three incidents involving vessels in the Strait of Hormuz on Wednesday
• Meanwhile, Middle East exports of refined products remain well below prewar levels
• • Global Risk Management estimates that regional product exports have recovered to only around 50% to 60% of prewar volumes
• As the White House mulls a diesel export ban, the administration has pressed France and Germany to release fuel reserves and asked the European Union to draw down 120 MMBbl of diesel over the next six months
• Goldman Sachs estimates that the release of European strategic diesel reserves could offset roughly half of the increase in European prices caused by a US export ban

Gas ticks lower as temperatures edge up at the end of the forecast

• Natural gas is down -2.0c to $3.006/MMBtu (As of 08:04 AM CDT)
• Temperature forecast got slightly warmer in the back half of the two-week period, with the latest model run shifting demand lower by 3.3 Bcf/d (Criterion)
• Production also improved, up nearly 1 Bcf/d this morning to 110.9 Bcf/d
• • L48 Production is still roughly two Bcf/d lower than last month’s average
• Feedgas demand eased this morning to 18.3 Bcf/d, printing a fresh recent low
• • Sabine Pass led decliners with a 365 MMcf/d drop as KM LA flows into Sabine fell
  • There was a corresponding uptick in flows delivered to storage at the same time (Criterion)

The EIA reports its weekly natural gas storage report today, with the median Bloomberg estimate sitting at a 63 Bcf build in US inventories