Written Commentary
CRUDE OIL
August Crude Oil was near unchanged overnight but it remained within striking distance of Tuesday’s 12-week high. The EIA report on Wednesday showed crude stocks falling by a 12.2 million barrels last week, which was the biggest one-week decline since last July and was much more than the -0.7 million expected. Gasoline and distillates stocks also came in at the bullish end of expectations:
- Crude stocks -12.2 million barrels last week versus -0.7 million expected.
- Gasoline stocks -2.2 million vs -1.3 million expected.
- Distillate stocks -1.5 million vs -1.2 million expected.
- Refineries 93.5% versus 92.9% expected.
- Crude imports fell to 6.5 million bpd vs 6.6 the previous week (-0.1).
- Crude exports were 4.4 versus 3.9 previously (+0.5).
- Implied gasoline demand 9.4 million bpd versus 9.0 million the previous week.
The dollar fell to its lowest level in almost four weeks on Wednesday on a lower than expected weekly Initial Claims number, and it extend those losses slightly overnight, with all the other major currencies higher. If today’s jobs report comes in weaker than expected jobs report this morning it could to the pressure on the dollar, but a strong report could stem the decline. A weaker dollar supports crude oil. The trade has been gearing up for a record travel week, and AAA is forecasting a 4.8% increase in car travel over last year.
Reuters reported that Russian oil producer Rosneft will make sharp cuts to oil exports out of its Black Sea port of Novorossiysk in July. Saudi Arabia’s Saudi Aramco has cut prices to its Arab Light crude it will sell to Asia in August, which is viewed as evidence of the pressure OPEC producers face from strong non-OPEC production. OPEC’s oil output increased for the second straight month in June.
Hurricane Beryl is moving inland across the Yucatan Peninsula this morning. Northeastern Mexico and southeastern Texas will be watching to see if it regains intensity after it moves over the Gulf of Mexico. It is due to land there late this weekend.
PRODUCT MARKETS
The draws in gasoline and distillate stocks in the face of higher refinery runs indicates strong demand. The implied gasoline demand number was the highest since last November. This is being touted as the “peak demand” weekend of the year, which may put intensify the focus on next week’s numbers. We expected RBOB and ULSD to follow crude oil today.
NATURAL GAS
Wednesday’s weekly EIA US Gas Storage report showed US gas in storage increasing last week as expected, and it was at the upper end of expectations. The market fell immediately after the report was released, and extended its losses overnight.
- Gas storage was 3,134 bcf, up +32 bcf from a revised 3,102 for the previous week.
- This was at the bearish end of expectations ranging from +22 to +35.
- Storage is up 9.6% from a year ago and 18.8% above the five-year average, which is slightly less burdensome than the +11.5% and +20.7% readings last week.
The build was smaller than normal for this time of year. The same week last year was +76 bcf, and the five year average is +69. Builds have been smaller than usual for eight weeks in a row after several producers cut output earlier this year in response to low prices. Spot market prices in the Waha hub in west Texas have fallen to negative territory, plunging from -$0.52 per mmBtu on Tuesday to -$2.06 on Wednesday as pipeline restraints trapped gas in the Permian Shale.
Hot weather is expected out west next week and in the eastern US as well, with normal to below normal temperatures in the central part of the nation. The 6-10-day forecast has extreme heat from Arizona to Montana and extending all the way to the coast, with above normal temperatures in the east . Below normal temps are expected in the southern Plains, and normal in the central Midwest. The 8-14-day has above normal temperatures across most of the nation, with extreme heat over the northern Rockies and near normal in south-central Texas. The generally hotter than normal weather trend could keep demand running at a strong clip.
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