Additionally, gasoline supplied, a measure of implied demand, only bounced by 459,000 b/d (barrels a day) to 8.52 million b/d last week after the measure plunged 1.35 million b/d the prior week, which was the largest since the initial COVID lockdowns…wrote analysts at Sevens Report Research. Click here to read the full article.
The Energy Information Administration data showed a healthy rebound in gasoline demand, easing some recent concerns about demand destruction in gasoline markets…said Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.
What’s in Today’s Report:
Futures are modestly lower following new COVID-related shutdowns in China.
Macau will close most businesses, including casinos, for one week following a COVID outbreak while Shanghai will continue with massive testing, in what is a signal that the “Zero COVID” policy is at least partially still in effect.
Geo-politically, Canada released a turbine to Gazprom (a Russian energy company) and the hope is that will result in increased natural gas flows to Europe in the coming weeks, putting more pressure on commodity prices.
Today there are no notable economic reports and just one Fed speaker, Williams at 2:00 p.m. ET. Futures are taking the new lockdowns in China somewhat in stride but if headlines imply anything like a repeat of the Shanghai lockdowns of March-May, expect stocks to drop as a result.
If the pipeline isn’t back up and running by the end of the week, “we could see gasoline prices go parabolic in the near term, as there are already reports of…” said Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.
“The geopolitical fear bid supporting the gains in the energy markets in the front half of the week vanished much quicker than most analysts anticipated…” says Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.
“The geopolitical fear bid supporting the gains in the energy markets in the front half of the week vanished much quicker than most analysts anticipated…” says Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.
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Yesterday’s EIA report was taken with a grain of salt, as the effects of Hurricane Harvey badly skewed the data resulting in a print that was basically worthless from a fundamental analysis standpoint. As would be expected with a large number of refinery outages, crude stocks rose +4.6M bbls, but that was slightly less than estimates calling for a +5.0M build.
Meanwhile, both gasoline and heating oil inventories declined (as refineries runs were way down) by -3.2M bbls and -1.4M bbls, respectively (but both declines were smaller than expected). On balance, the headline prints were largely dismissed. WTI finished the day down 0.22% while RBOB gasoline futures fell 0.98%.
The production portion of the report was a little shocking at first glance, but at the same time, the data made sense when you consider the impact Harvey had on the Gulf Coast oil industry. Lower 48 production declined -783K b/d last week, or 94% of the 2017 output gains.
For perspective, the average weekly change coming into this week was +24K b/d. Like the headlines, the production data was largely overlooked by traders because the data was so badly skewed by Hurricane Harvey.
Looking ahead, it will be very important to watch the production data. If output does not recover in a swift manner that will be a bullish supply side development, as the relentless grind higher in US oil output has been the single-largest headwind for oil prices this year. For now, the outlook for oil is neutral with a bias to the downside, as nothing has changed materially enough to push futures through resistance between $50 and $54/barrel in WTI.
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Yesterday’s weekly inventory report from the EIA was universally bullish on the headline level as there were sizeable draws in crude oil stockpiles as well as in the refined products. The market responded favorably to the supply drops and WTI futures finished the day up 1.61%.
Beginning with those aforementioned headlines, commercial crude oil stocks fell –4.7M bbls last week, larger than analysts expectations of –3.1M and opposite from the API report that showed a build of +1.628M bbls.
Gasoline supply fell –4.4M bbls yesterday, and while that was less than the draw reported by the API (-5.4M) it was much larger than the average analyst estimate of –600K bbls.
Distillate inventories also fell –2.1M vs. (E) -700K rounding out a broadly bullish set of headlines in the report.
The details of the report however, once again showed a continuation in the bearish trend of rising US production. Lower 48 production (which filters out the seasonally volatile Alaskan data) rose another +30K b/d last week, above the 2017 average pace of +26K b/d to
8.97M b/d. Lower 48 production is now up +729K b/d so far in 2017, the highest level since late July 2015.
Bottom line, a string of supply draws over the last three weeks in crude oil and gasoline stocks totaling –18.6M bbls and –9.8M bbls, respectively, has offered the market some support, and helped curb a decline that pushed oil prices down to new 2017 lows. And with sentiment being very bearish coming into the month of July, the market was due for an upside correction. But, the underlying fundamentals remain bearish and as of now, we believe this is a counter-trend rally in an otherwise still broadly downward trending energy market. We won’t fight the rising tide, and a run at $50/barrel in WTI is very plausible, but we will be looking for signs of the trend to break in the weeks ahead and for the market to turn back lower based on fundamentals, market internals (term structure), and longer term technicals.
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