The petroleum complex traded in a firm fashion as a large draw in crude stocks reported by API yesterday afternoon was later confirmed by the DOE report. The DOE reported that crude inventories fell by 12.8 mb last week, compared to expectations for a decrease of 2.7 mb. The large draw was attributed to a decline of 1.2 mb/d in net imports to 2.9 mb compared to the four week average pace of 6.0 mb/d last year. Exports of crude oil in the latest week reached 3.8 mb/d compared to 3 mb/d in the same week a year ago. Of particular concern, was the decline in product stocks with distillate falling by 2.4 mb and Gasoline declining by 1 mb/d. The gasoline was the strongest within the complex with values rallying over 8.00 cents per gallon on reports that Philadelphia Energy Solutions was looking to close their refinery following the fire this past weekend. The announcement raised fears over nearby supply tightness particularly on the East Coast. Refinery utilization at 94.2 percent remained low relative to last year’s level of 97.5 percent.
The market surge into the 59.00-60.00 level basis August crude introduces the prospect that OPEC+ at their meeting beginning July 2 might not extend the agreement as expected as we move into the 2nd half of 2019. The reluctance of Russia to cut along with the appearance that inventories are beginning to decline might make negotiations more difficult particularly if the G-20 provides a more optimistic outlook on the global economy. Key to the outlook remains the impact of sanctions on Iran and Venezuela and the resulting supplies available to the world market over the last half of 2019. Concerns over market share remain in the background with indications a surge in oil imports from the US to India has displaced Iranian sales from the Mid-East.
The surge in the Gasoline crack today to 21.70 today basis the Aug should begin to encounter some resistance near current levels as the market assesses the impact of the prospective closure at the Philadelphia Energy Solutions refinery. It appears that some reduction in gasoline exports will likely need to occur helping ease the tightness that the refinery fire has caused. Nevertheless pullbacks are likely to be limited until a more accurate assessment of the situation occurs and the potential exists for values to trend up toward the 24-26 level before a meaningful top is put in.
In crude, we still see resistance likely in the 59-60 range as the market trades cautiously into the G-20 meeting this weekend and the OPEC+ meeting scheduled for July1-2. However, the current area merits caution given that the market today moved through the 100 day moving average for prompt crude at 58.70 and the 200 day average at 58.99 while the August contract moving averages for today were 59.36 on the 100 day and at 59.59 on the 200 day.
Prices traded cautiously in advance of the EIA report tomorrow. Prospects for another large injection of 99 bcf compared to 70 bcf on the five year average appeared to limit interest and led to scattered profit taking. Ideas that demand will pick up due to warmer temps has helped provide support but fears are building that shipments of LNG might stall as European demand falls due to high storage and low prices in Northern Europe. If LNG shipments do begin to fall then values have potential to weaken back to recent lows near 2.17 and possibly the 2.00 level before stabilizing.
Charts Courtesy of DTN Prophet X
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