Written Commentary
CRUDE OIL
August Crude Oil gapped lower early Monday on the news that the US and Iran had agreed to a memorandum of understanding that would include a 60-day cease fire, a reopening of the Strait of Hormuz within 30 days, and an end to the US blockade of Iranian ships. This signing is reportedly set for Friday, likely in Switzerland. The issues of Iran’s nuclear program, US sanctions, Lebanon, and Hezbollah still have to be resolved, and officials had previously said both sides would hold detailed discussions on these over the next 60 days. Israel does not appear to be on board, either. Industry experts point out that it will take weeks to months to get oil flows back to normal, but this appears to be the most positive news since the war began, and it makes the drawdowns of reserve supplies look less dire.
PRODUCTS
Product prices followed crude oil lower early Monday as the memorandum of understanding announced over the weekend provided hope that the Strait of Hormuz will reopen. Just as it will take time for the ships to start moving out of the Persian Gulf, it will also take time for refining capacity in and around the region to be restored and in some cases repaired. This may cause some lag in gasoline and diesel output. With the expansion of exports the past few months, US gasoline and distillate supplies are near six year lows.
NATURAL GAS
August Natural Gas was lower early Monday on the news of agreement between the US and Iran. The potential restoration of LNG flows through the Strait of Hormuz means that US exports could start to see competition from Qatar once again, but it could take also quite a while for that country to see its flows return to where they were prior to the war given the damage their plants suffered from Iranian attacks. The US weather forecast is mixed and does not show much potential for a surge in cooling demand that would send US supply sharply lower.
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