Crude Surges on Rising US-Iran Escalation Risks; Gas Extends Rally as Production Dips

Crude surges as White House weighs renewed Iran strikes

• The WTI prompt-month contract rose $4.30 to $92.58/Bbl Thursday morning (7:30 AM CT)
• The Trump administration is considering renewed military strikes against Iran that could be carried out before the midterm elections, according to The Atlantic
• Meanwhile, attacks on tankers near the Strait of Hormuz have accelerated, with maritime security sources recording at least 12 incidents in October so far
• • A tanker was struck near Qatar on Wednesday, raising concerns that attacks could spread deeper into the Persian Gulf
  • Kpler estimates that crude flows through Hormuz fell 27% from the previous week’s wartime peak to 10.1 MMBbl/d, equivalent to 74% of prewar levels
• Although recent ship-to-ship operations have supported higher exports through Hormuz, the system has reduced tanker availability and kept delivered crude costs elevated
• • Bloomberg reported that shipping crude from the Middle East to East Asia cost roughly $1.4 million per day on Wednesday, the highest level on record
  • At least one VLCC was offered this week for a voyage from the US Gulf Coast to Japan at a potential record cost of $82 million, or more than $40/Bbl and roughly 50% above levels from several weeks ago
• Domestically, Gulf of Mexico producers have shut in more than 510 MBbl/d of crude production as Hurricane Isaias strengthens in the US Gulf

Gas extends rally as production dips

• Natural gas is up 6.3c to $3.266/MMBtu (As of 07:30 AM CDT)
• L48 production fell over 600 MMcf/d this morning, bringing total supply to a fresh two-week low at 113.4 Bcf/d
• • Appalachia continues to lead production declines, down 335 MMcf/d today to 34.5 Bcf/d (Criterion)
• Weather driven demand gave back some gains this morning, losing 5.3 Bcf of demand across the forecast range
• • The losses were due to warming in the forecast, specifically in the Northeast and Midwest in the 5-10 day range
• Storage week temperatures are expected end this week at 69.2°F, before falling consecutive weeks to average 61.2°F for the week ending 10/23

The EIA reports its weekly natural gas storage report today, with the median Bloomberg estimate sitting at an 82 Bcf build

• If the build falls in line with median estimates, the storage surplus will shrink again, with the 5 year average build this week at 96 Bcf

Freeport revises down feedgas demand in late nom cycle

• Freeport has nominated for 2.2 Bcf/d of feedgas demand each day this week, but has revised down their demand in late noms to roughly 1.5 Bcf/d each day
• This continues today, with Freeport leading a feedgas demand jump higher but with risk of these volumes being revised lower
• This comes 4 days after the operator reported taking a train offline for maintenance work on a compressor system, declining to comment further