Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex traded on both sides of unchanged following a constructive DOE report showing a large draw from crude inventories. The August settled with a gain of 1.07 at 83.88. Lower disappearance levels for gasoline compared to last year along with weak US economic data accounted for the lack of buying interest at the higher levels following the report, which lead to profit taking. Selling was also driven by indications that Hurricane Beryl was unlikely to impact US production, along with reports of OPEC overproduction in June. The weakness was limited, and prices recovered into the close on signs that inventory levels are declining in the US as seasonal increases in demand take place.
The DOE report showed commercial crude inventories falling 12.2 mb to 448.5 compared to 452.2 a year ago. Gasoline stocks were lower by 2.2 mb to 231.7 against 219.5 last year while distillates were off 1.5 mb to 119.7. Total stocks of crude and products were down 13.0 mb to 1,283 but higher than last year’s level of 1,261.2 when prices were just below 70.00 on prompt crude. Refinery utilization rose to 93.5 compared to 92.2 last week and 94.5 percent in 2023. Product supplied during the week totaled 21.1 mb/d, slightly below last year’s level of 21.2. So far this year, total disappearance is .3 percent higher. In gasoline, product supplied reached 9.4 mb/d compared to 9.6 last year. Distillate disappearance totaled 3.7 mb/d compared to 3.8 last year. Net export levels for crude and products surged to 2.9 mb/d.
Key to the outlook will be gasoline disappearance levels over the next few weeks reflected in the DOE report. Apprehension over OPEC production levels could surface on the upside toward 85.00 basis August given reports that their oil output rose for the second month. The report put production in June at 26.7 mb/d, an increase of 70 tb/d from the prior month and as much as 280 tb/d above the implied target, with Iraq accounting for the bulk of the excess. Iran, who is not required to cut output, saw production reach 3.2 mb/d, matching their highest rate since November of 2023. Friday’s employment report could be a critical factor given its potential to impact the Fed’s direction on interest rates and the consequences for the dollar. Global demand will be a concern as questions arise over the pace of economic growth in China and Europe.
Natural Gas
Weakness continued in natural gas as the market probed out a new low for the sixth straight session. Prices stabilized briefly today before settling with a loss of 1.7 cents at 2.418 as volume was subdued ahead of the holiday. The weekly storage report was released today due to the 4th of July, and it showed a 32 bcf injection which was in line with estimates, although revisons to last week added 5 bcf to total stocks. The 5-year average build was at 69. The brief normalization in temperatures has run its course, with forecasts pointing to above normal readings for each of the next 15 days, but production has recently reached the 102 bcf area and LNG continues to flounder under 13 bcf, weighing down any bullish sentiment. Prices traded higher early in the session, with minor short-covering ahead of the long weekend, but the inability to flush out more substantial buying interest does not bode well for the near term, with the shoulder season lows near 2.36 the next target on the downside. With the RSI under 30 percent, the market could see a jump higher at any time, and will find minimal resistance until the 9-day moving average near 2.67 and then at 2.72, which would achieve a 38 percent retracement of the break from mid-June.
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