Written Commentary
CRUDE OIL
Crude oil prices are near unchanged this morning, as the market balances conflicting demand expectations from IEA, OPEC and EIA. The CPI number came soft this morning, raising expectations for a rate cut, which would support demand.
Overnight the International Energy Agency (IEA) left its forecast for 2024 global demand unchanged and 970,000 barrels ped day for 2024 and lowered its forecast for 2025 growth by 50,000 bpd to 980,000. The group reported demand increased by only 710,000 bpd in the second quarter, its lowest quarterly increase in over a year, blaming poor growth by China. Yesterday, OPEC left its forecasts unchanged from last month, with world oil demand expected to increase by 2.25 mbpd in 2024 and by 1.85 mbpd in 2025. Earlier this week EIA, changed its forecast for 2025 from surplus to deficit, based on expectations for lower OPEC+ output and slightly higher consumption. They put 2025 world consumption at 104.7 million bpd, up from a previous forecast of 104.5 million.
Yesterday’s weekly EIA stocks report showed US crude stocks fell 3.4 million barrels last week, which was much bigger than the expected 250,000-barrel decline but nowhere near as impressive as the previous week’s 12.2 million-barrel drop. Gasoline stocks fell 2.0 million, which was close to the expected decline of 1.9 million and the previous week’s 2.2 million decline. Distillate stocks were up 4.9 million, which was bearish against expectations calling for a modest increase of 300,000 and the previous week’s 1.5 million drop. Refineries operated at 95.4% of capacity versus 94.1% expected and 93.5% last week. Crude oil production reached 13.3 million barrels per day last week, which matched the high for the year and was up from 12.3 mbpd from a year ago. The size of the decline in gasoline stocks in the face of the strong refinery activity was impressive.
PRODUCT MARKETS
Gasoline stocks falling 2.0 million barrels las week in in the face of higher refinery runs indicates strong demand. Implied gasoline demand last week was 9.40 million bpd versus 9.42 million the previous week and 8.76 million a year ago. However, there is also the concern that this could have been the peak demand period for the summer. Distillate stocks increasing by 4.9 million barrels last week versus an expected decline of 300,000 barrels was bearish, but that may have been countered by implied demand reaching 3.47 mbpd versus 3.72 last week, 2.97 a year ago and 3.35 on average.
NATURAL GAS
A report overnight suggested that operations at the Freeport LNG plant were still ramped down in the wake of Hurricane Beryl. As of yesterday afternoon they were expected to after the was to resume operations by today.
The Port of Freeport said on Wednesday that the navigation channels were opening as power was being restored. But LNG exports are not expected to start until the port, which is currently under restrictions, fully reopens for vessel traffic. The slowdown in LNG production is considered bearish as it could back up US gas supply. A Reuters poll of analysts call for a net injection of 49-56 bcf for today’s EIA weekly storage report. Increases may be limited by the extreme heat being experienced in the southeast and southwest regions of the US, but the latest forecasts call for a moderating temperatures. The 6-10-day forecast call for extreme heat in the northern Rockies and the southeastern US, but cooler than normal temperatures around the northern Great Lakes, and the 8-14 day has near normal temps from eastern Iowa to northern Arkansas, extending to the East mid-Atlantic region.
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