Written Commentary
CRUDE OIL
A bullish EIA report yesterday provide a one-day respite from the recent selloff, but the market is back focusing on lower global demand. There is lingering concern about China, which saw lower than expected GDP in the second quarter and lower crude oil refinery usage. The sharp decline in US stock market prices, especially the “Magnificent Seven” tech stocks, has contributed to the negative sentiment regarding demand. A former Fed official worried yesterday that the Fed had waited too long to cut rates. This seems to have raised hopes that they would cut rates as soon as next week instead of waiting until September, but the comments may have unnerved the market. Russian Deputy Prime Minister Novak said today that there was no friction with OPEC+ regarding Russia exceeding its quota in June.
Yesterday’s EIA report showed US crude oil stocks fell 3.7 million barrels last week versus expectations calling for a decline of 2.8 million. The decline was slightly less than what the API report had indicated. Refineries operated at 91.6% of capacity, down from 93.7% the previous week and well below that expectations for 93.4%, which points to lower refinery demand. Crude imports were 6.9 million barrels per day versus 7.0 million the previous week, and exports were 4.2 million bpd versus 4.0 million the previous week, which lowered net imports to 2.7 mbd from 3.0 the previous week. US crude production held steady at 3.0 mbd. Crude oil stocks are down 20.3 million barrels from last year and 23.6 million below the five-year average.
PRODUCT MARKETS
The EIA report showed gasoline stocks falling 5.6 million barrels last week versus expectations for a decline of 500,000 and distillate stocks down 2.8 million versus expectations for an increase of 30,000. Implied gasoline demand was 9.5 million barrels per day versus 8.8 million the previous week and 8.9 million a year ago. This was the highest it has been so far this year. Gasoline stocks are 9.8 million above a year ago but 4.3 million below the five-year average.
NATURAL GAS
September Natural Gas is chopping around inside a range defined by the contract low from last week and Monday’s high. The weather forecast over the next couple of weeks calls for above normal temperatures across the Lower 48, which should boost cooling demand, but US supply is running well ahead of a year ago. For the weekly EIA US inventory report this morning, traders are looking for an increase of 11-24 billion cubic feet for the week ending July 19. Last week’s report showed US supply was running 8.4% above a year ago and 16.9% above the five-year average as of July 12. This was a relative improvement from the +9.7% and +18.7% readings the previous week. The 6-10 forecast showed above normal temperatures across most of the US, and the 8-14-day shows above normal everywhere except for south Texas and a northwest corner of Washington. European gas prices are lower on weaker demand, which points to lower demand for US LNG.
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