Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex traded mixed following the DOE report that showed a larger than anticipated draw in inventories of crude and gasoline. The stock drop and pick-up in refinery utilization led to crude gaining 69 cents to 82.10, while gasoline weakened, with August losing .2.40 cents and ULSD settling near unchanged.
The DOE reported crude inventories lower by 3.4 mb with stocks at Cushing falling .7 to 33.5 mb. Gasoline stocks fell 2 mb while distillates built sharply by 4.9 mb. Total stocks of crude and products rose 3.0 mb to 1,285.6 mb compared to 1.278.1 in 2023. Refinery utilization rose sharply to 95.4 percent compared to 93.5 last week. Domestic production of crude oil reached 13.3 mb, 1 mb /d above last year’s level and 100 tb/d above last week. Total disappearance levels at 20.7 mb remained strong compared to last year when it reached 18.7. Gasoline supplied was at 9.4 mb compared to 8.8 last year, but still stands 1.2 percent below last year’s cumulative level through the latest reporting week. Distillate supplied reached 3.5 mb against 3.7 last week and 3.0 last year. Net exports of crude and products were 1.9 mb/d compared to 2.9 last week. The crack margins weakened following the report, with gasoline showing a larger decline than the 2-oil.
The OPEC Monthly Report released today showed little change in demand expectations as they maintained a historically high differential to the IEA, whose monthly report is scheduled for release tomorrow. The US EIA yesterday forecast a supply deficit next year from a small surplus expected previously given OPEC’s planned production cuts. For 2024, the EIA predicts global oil demand exceeding output by 750 tb/d in the second half despite an increase in US production to 13.25 mb/d.
Upside movement in values will be difficult despite support from the rising likelihood of an interest rate cut in September. Tomorrow’s CPI report will be critical in determining whether these expectations are on target and will shape movement in the dollar, interest rates and the equity markets. Ceasefire talks between Hamas and Israel could lead to an easing of tension in the Middle East and have a short-term impact on sentiment. Apprehension over OPEC production levels also persists, limiting the effectiveness of the current agreement. Signs the US economy might be slowing along with concerns over the pace of growth in China and Europe will also offer overhead resistance on ideas that inventory levels might not fall as much as expected in the third quarter.
Natural Gas
After attempting to mount a rally on Monday and Tuesday, prices returned to their negative bias, settling with a loss of 1.5 cents today at 2.329. Freeport decreased activity on Sunday ahead of Beryl, and they have remained at minimal operations with rumors of a restart on Thursday. This drop in flows has offset expectations for strong demand from the 15-day forecasts, causing prices to trade indecisively over the past few sessions. With production improving in July to the 102 bcf/d area, forecasts will need to hold onto the expected heat in order to steady the relentless fall in prices. Today’s weakness points to a near term retest of Monday’s low at 2.268, and failure there would portend a probe to the contract lows at 2.208
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