The petroleum complex registered sharp losses as a large US inventory build undercut values. The DOE report indicated a 6.8 mb increase in crude oil stocks for the week ending May 31st compared to expectations for a draw of .8 mb. A jump in imports, record high production and sluggish refining rates all weighed on sentiment and likewise values. Even more important was the sizable build in total petroleum inventories, which were up over 22.4 mb as product stocks increased across the board. Crude stocks have risen in three of the last four weeks and currently stand at the highest levels since July of 2017 at 483.3 mb, 6 percent above the five year average for the comparable period.
Despite the weak refinery utilization at 91.8 percent compared to 95.4 percent a year ago, product inventories showed large increases with gasoline stocks increasing by 3.2 mb, distillate increasing by 4.6 mb and propane rising by 2.5 mb. Total product supplied dropped sharply relative to last week at 19.4 mb compared to 21.5 mb. Net imports of crude were 2.2 mb compared to 861 mb in the previous week.
With values now approaching the 50.00 level there appear to be moves afoot by the Saudis to shore up the agreement. Reports suggest that the Russian and Saudi energy ministries are prepared to meet on June 10th to discuss bilateral trade and energy projects. Undoubtedly the state of the oil market and its recent weakness will be a topic of discussion. Whether OPEC+ members are willing to yield market share to the US will remain a key question as we approach the full ministerial meeting later this month. Nevertheless at these levels the markets looks oversold and should begin to find some underlying support near the 51.00 area basis July.
Values remained under pressure on weak demand. Reports of slower LNG exports along with the potential of weaker exports to Mexico helped encourage the weakness. Weather remains rather moderate and has helped limit demand, which is forecast to total 77.3 bcf this week compared to 78.8 last week and 80.2 last year in May. The breakdown looks poised to test the 2.30-2.35 level basis July where better support should emerge. Estimates for tomorrow’s EIA point to another large storage build of 107 bcf compared to 93 a year ago and 102 bcf on the five year average.
Charts Courtesy of DTN Prophet X
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options ADMIS position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to. The authors of this piece currently maintain positions in the commodities mentioned within this report. Charts Courtesy of DTN Prophet X, EIA.
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