Morning Market Overview
The oil complex increased for the second week in a row and is starting trading slightly higher in a low liquidity session with the US closed for the Labor Day Holiday. Oil prices have been steadily rising since hitting a bottom on Aug 16. The battle between rising production by OPEC and its non-OPEC partners offsetting further production losses from the many evolving geopolitical events around the world has shifted since mid-Aug with the production loss view taking center stage.
The most prominent issue is the advent of new sanctions scheduled to be placed on Iran in early November by the US. Reuter’s and other media outlets are already reporting that exports from Iran are declining faster than originally estimated as buyers back away ahead of the US sanctions. With global inventories still declining and the overhang of unsold cargoes in the Atlantic basis at about half of the level from a few months ago there is a growing concern that supply could be tight as the industry enters the normally higher demand Q4 and Q1 period.
The tropical season has become more active over the last few days with three events evolving in the Atlantic Basin. None of the three are currently projected to hit hurricane status as of Monday morning. Tropical Storm Gordon is off the Florida Keys and heading into the Gulf of Mexico with landfall expected as a tropical storm hitting eastern Louisiana area early Wednesday morning. Tropical Storm Florence is still well out in the Atlantic with the projections suggesting a path veering toward the east coast of the US with most of the models currently projecting Florence to veer north and not make landfall in the US. Finally, there is a disturbance of the coast of Africa that currently has a very low chance of forming into a storm over the next 48 hours. Simply one we will watch on the radar.
TS Gordon is currently the only tropical event that could impact oil and Nat Gas production (but not in a major way) as well as shipping in and around the Gulf of Mexico during the current week. Friday afternoon the latest Baker Hughes data hit the media airwaves reporting the number of rigs deployed to the US oil sector increased by 2 rigs on the week after declining during the previous week. Total rigs deployed to the oil sector are higher by 103 or 13.6 percent year over year. Total US crude oil production is about 17.2 percent above where it was for the same week a year ago. This week’s production came in at 11.033 million bpd.