Written Commentary
CRUDE OIL
Mideast tensions rose overnight with the news that a leader of Hamas was assassinated in Iran, and September Crude Oil responded with a sharp rally after falling to its lowest level since June 10 yesterday. This follows a report yesterday that the Israeli government had killed Hezbollah’s most senior commander in an airstrike on Beirut, which was in retaliation for Saturday’s rocket attack on northern Israel. Yesterday, the US conducted an airstrike in Iraq against a paramilitary force aligned with Iran that US officials said was planning to launch drones against US and coalition forces. China’s PMI contracted for the third straight month in July, coming in at 49.4, down from 49.5 in June but just above trade expectations calling for 49.3. The dismal outlook for Chinese demand has pressured the market recently, but the fact that low PMI number was better than expected may have limited its impact. OPEC+ is not expected to make any changes to its current plan to start unwinding production cuts in October at their online joint ministerial meeting on Thursday. They are currently cutting output by 5.86 million barrels per day or about 5.7% of global demand in a series of steps agreed to in late 2022. TASS report that Russia has decided to ban gasoline exports in September and October. Germany’s energy use fell 3.4% in the first half of 2024 according to industry statistics group AGEB. They cited mild weather and slow economic performance. However, the primary impact was on coal, which fell 18.7%. Oil usage actually increased 0.4%, and natural gas was up 0.7%.
The weekly EIA report will be released this morning, but sources tell Reuters that the weekly API report released yesterday had US crude stocks falling 4.495 million barrels last week versus expectations for -2.3 million, with gasoline stocks down 1.917 million versus -1.4 million expected, and distillates down 322,000 versus -1.5 million expected. Refinery utilization is expected to be up 0.4% to 92%.
PRODUCT MARKETS
RBOB and ULSD rallied overnight off Mideast tensions. RBOB market may find additional support from the EIA report today if implied gasoline comes in strong again this week. Last week’s number was 9.456 million barrels per day, which was the highest so far this year.
NATURAL GAS
September Natural Gas is lower today following yesterday’s rally. Spot prices at the Waha hub in West Texas turned negative for a third time this month today despite expectations for a record-breaking heatwave that could send US power demand to an all time high. Temperatures across the Lower 48 are expected to average 83.5 degrees F on August 1, and 83.9 on August 2, which would top the daily record high of 83.0 from July 20, 2022. LSEG forecast power generation at 55.0 bcfd on August 2, which would top the previous record of 54.1 from July 9. Gas flowing to Freeport LNG in Texas was on track to reach a 14-month high yesterday following a nine-day outage for Hurricane Beryl early this month. The higher gas usage by power generators and the increased flows for LNG production could cause utilities to pull gas out of storage during the first week of August, which is unusual this time of year. Weekly storage builds have been smaller in recent weeks because lower prices this year caused producers to cut output. For the EIA report tomorrow, the trade is looking for an increase of 27-45 billion cubic feet. Last week’s report showed US supply was running 8.4% ahead of a year ago and 16.4% ahead of the 5-year average. The 6-10-day forecast shows above normal temperatures across most of the Lower 48. Below normal temperatures expand into the northern Plains, northern Midwest, and New England in the 8-14 day.
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