Oil Prices Fall After a Volatile Week

Crude oil prices were volatile this week as conflicting reports on oil flows, continuing infrastructure attacks and limited diplomatic progress created significant market uncertainty.

WTI traded across a range of more than $12/bbl before finishing lower for the week, while Brent was essentially flat. Natural gas moved sharply higher as pockets of extended summer heat, a reported pipeline outage and a much smaller-than-average storage injection supported prices.

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Oil

Fundamental Analysis

Several factors whipsawed crude prices this week, with WTI experiencing a high-to-low spread of more than $12/bbl. Varying reports about flowing oil, ongoing attacks on energy infrastructure and limited diplomatic progress contributed to the uncertainty.

WTI's high was Monday's $101.10/bbl for October, while the low was Wednesday's $88.70. October Brent crude reached a high of $108.25/bbl and a low of $97.35. WTI finished lower for the week, while Brent was essentially flat. The WTI/Brent spread widened considerably to $11.70.

Saudi Arabia reported that flows through its East-West pipeline have resumed. Houthi rebels, however, continue to strike targets in Saudi Arabia, including attacks near Riyadh and Saudi Aramco facilities at the port of Yanbu, the terminus of the East-West pipeline where crude is loaded for export.

Saudi forces have intercepted several missiles launched by the Houthis, while France has pledged assistance to help protect the strategically important port and refinery at Yanbu.

Diplomatic signals remain mixed. Saudi Arabia and Oman have appealed to Washington to maintain economic and military pressure on Iran, while Qatar has proposed that negotiations resume as early as next week in Oman. Some reports cited in the commentary indicate that Iran could consider opening the Strait of Hormuz if the U.S. rolls back its naval blockade.

Despite the continuing attacks, an estimated 5.5 million barrels per day of oil has been moving from Yanbu and the U.A.E.'s Fujairah port in the Gulf of Oman. That remains below June's 7.8 million barrels per day, and the ship-to-ship transfers being used to move some of these supplies are costly.

The IEA reported that global oil inventories have declined by approximately 507 million barrels since the beginning of the Iran War, equivalent to roughly 2.8 million barrels per day. August is estimated to have produced another 95 million-barrel decline.

U.S. Petroleum Snapshot

The Energy Information Administration's Weekly Petroleum Status Report indicated that commercial crude oil inventories increased by 3.0 million barrels to 426 million barrels, approximately 2% above the five-year average.

The build came against expectations for a decline. The API had forecast a 1.8 million-barrel draw, while analysts expected inventories to decrease by approximately 500,000 barrels.

Gasoline inventories decreased by 1.7 million barrels to 206 million barrels and remain 6% below the five-year average. Distillate inventories decreased by 430,000 barrels to 107 million barrels and remain 12% below the five-year average.

Refinery utilization declined to 94% from 96.8% the previous week, while crude inputs decreased by approximately 520,000 barrels per day to 16.8 million barrels per day.

Gasoline demand increased slightly to 8.85 million barrels per day. Crude imports declined to 5.9 million barrels per day from 7.1 million barrels per day, while crude exports fell to 3.3 million barrels per day. Refined-product exports increased to 7.9 million barrels per day.

The Strategic Petroleum Reserve declined another 0.4 million barrels to 284.5 million barrels, its lowest level since 1982. Stocks at Cushing, Oklahoma increased by 2.3 million barrels to 23.7 million barrels, or approximately 31% of capacity.

U.S. crude production remained at 13.94 million barrels per day. The U.S. oil and gas rig count increased by four to 599, with three additional oil rigs and one additional natural gas rig.

Gasoline prices reached $4.49 per gallon, up $0.39 from a month earlier and $1.33 from a year ago. Diesel reached another all-time high of $6.51 per gallon compared with $3.69 a year ago.

The Trump Administration is considering a ban on U.S. diesel exports as a potential response to high domestic prices. The proposal has created competing concerns among agricultural states, which are major diesel consumers, and oil-producing and refining states. The U.K. and European Union have also expressed opposition to a reduction in U.S. diesel supplies.

Oil – Technical Analysis

November WTI NYMEX futures became the prompt-month contract this week at a price below October's close. The technical move lower that began last week continued, with prices retreating below the 8- and 13-day moving averages and trading around the 20-day moving average.

Volume is approximately in line with the recent average at 300,000 contracts. The Relative Strength Indicator has returned to neutral territory at 53.

Oil – Looking Ahead

Diplomatic signals surrounding the Iran War remain mixed. Iran has recently stated that it would not reopen the Strait of Hormuz under the current U.S. and Israeli leadership, while other reports suggest a willingness to negotiate some form of settlement involving the Strait.

Markets will be watching whether the proposed talks in Oman take place next week, whether French assistance can help Saudi Arabia protect the port of Yanbu, and whether regional efforts can reduce the threat from Houthi attacks around the Bab el-Mandab Strait.

The possibility of a U.S. diesel-export ban will also remain in focus. As temperatures move toward fall levels, sustained high diesel prices could translate into higher heating-oil costs across the Northeast, potentially broadening pressure for measures aimed at lowering domestic fuel prices.

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Natural Gas

Fundamental Analysis

October NYMEX Henry Hub natural gas futures moved higher this week as pockets of extended summer heat, a reported pipeline outage and a much smaller-than-average storage injection supported the market.

The week's high was Thursday's $3.32/MMBtu, while the low was Monday's $2.82.

Natural gas demand was estimated at approximately 98 Bcfd despite a significant decline in power-generation demand, while supply was estimated at approximately 109 Bcfd.

LNG exports were 18.5 Bcf, while exports to Mexico were 7.7 Bcfd.

International natural gas prices remained elevated. U.K. NBP natural gas was most recently at $24.25/MMBtu, Dutch TTF futures were $25.10/MMBtu and Asia's JKM was quoted at $25.75/MMBtu as Asian and European buyers continued competing for LNG shipments.

The EIA's Weekly Natural Gas Storage Report indicated an injection of 53 Bcf, matching the forecast but well below the five-year average injection of 95 Bcf.

Total natural gas in storage now stands at 3.351 Tcf, 4.2% below last year but 2.9% above the five-year average.

Natural Gas – Technical Analysis

October NYMEX Henry Hub natural gas futures moved above the upper Bollinger Band this week before retreating somewhat. Prices remain well above the 8-, 13- and 20-day moving averages.

Volume is below the recent average at approximately 75,000 contracts as traders turn their attention toward November with the October contract approaching expiration. The RSI is 61.

Natural Gas – Looking Ahead

Fall has arrived, and temperatures are expected to moderate into October. The 8–14-day outlook shows continued heat across parts of the West and Florida, while significant space-heating demand from either natural gas or heating oil is not yet expected.

Although natural gas storage remains above the five-year average, weekly injections are falling below historical averages. With five weeks remaining in the official storage injection season, approximately 130 Bcf per week would need to be added to reach 4.0 Tcf by November 1.

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Weekly Oil & Gas Commentary is provided for informational and educational purposes and should not be considered investment, trading or financial advice.