Written Commentary
CRUDE OIL
July Crude Oil traded to its highest level since Monday overnight as the market managed a quick recovery from a bearish EIA report yesterday. The trade seems to be getting more optimistic about central bank rate cuts, which they see as positive for demand. Two-thirds of economists polled by Reuters said they expected the US Fed to cut rates at the September meeting. However, an increase in the non-manufacturing PMI to 53.8 in May from 49.4 in April undercuts those expectations. The EIA report showed a surprise increase in US crude stocks last week and bigger than expected increases in gasoline and distillate stocks. A decline in implied gasoline usage was also viewed as negative, as it encompassed the Memorial Day holiday, which would be expected to show an increase. Saudi Arabia overnight cut its official Arab Light crude selling price (OSP) to Asia by 50 cents for July from the June level, blaming falling benchmark prices and weaker profit margins for Asian refiners. OSPs to Northwest Europe and the Mediterranean were increased by $1 , and US was left unchanged.
More details on the EIA report: US crude oil stocks came in at 455.9 million barrels for the week ending May 31, up 1.2 million from the previous week versus expectations calling for a decline of 2.3 million. Stocks were down 3.3 million from a year ago and below the five year average of 474.2 million. Net imports increased by 13,000 bpd. Refinery operations came in at 95.4% of capacity, up from 94.3% the previous week. This was the highest in a year and was a larger gain than expected. Crude stocks at the Cushing, Oklahoma hub rose by 845,000 barrels.
NATURAL GAS
July Natural Gas was higher overnight, but so far it has stayed inside Tuesday’s outside reversal day lower. The heat in the western US is expected to move east, albeit at a slightly less intense level, and this could boost air conditioning demand over the next 10 days. The 6-10 day forecast calls for much above normal temperature in the western half of the country but mostly below normal in the eastern half. The 8-10 day shows above normal temperatures across most of the nation, with the exception of the northwest corner. An intense heat have in India has boosted their power demand. India’s gas-fired power usage doubled in April and May to 8.9 million kilowatt-hours from the same period a year ago, fueled by an intense heat wave. Their LNG imports in May rose to their highest level since 2020, and they are expected to increase 19% this year. A Reuters poll projects EIA natural gas in storage to see an injection within a range of 89 to 91 BCF in today’s report.
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