The 4th of July is usually a time of fireworks and parades and star-spangled activities. For energy traders, it is also the pinnacle of the U.S. summer driving season. Yet, in these times of COVID-19 challenges, we saw a slowdown in weekly gasoline demand overshadowing a global oil market that is showing visible signs of moving from an oversupplied market to an undersupplied market. A strong jobs report and expansion in U.S. manufacturing is showing U.S. oil demand prospects improving and should help support the petroleum price rebound. rose by 4.8 million in June, much better than the expected increase of 2.9 million, and a record month-over-month increase. Gas demand will come back even if this week’s holiday is a bit subdued.
The Energy Information Administration (EIA) reported what could be the first of many substantial oil inventory drawdowns. The EIA showed that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 7.2 million barrels from the previous week. At 533.5 15% above the five-year average. Still, with reports that OPEC oil output hit a 30-year low and global demand, oil supplies are going to tighten.
Reuters reported that "tens of millions of barrels of crude and oil products stored on tankers at sea due to the coronavirus crisis are being sold, in a sign fuel demand is recovering as lock downs ease," shipping sources say.
"Fuel demand tumbled as much 30% from March to May, with some surplus stored at sea as land storage filled up. Crude held on tankers fell below 150 million barrels by the end of June, down from more than 180 million barrels in late April, IHS Market estimated. Refined products held on vessels dropped to 50 million barrels from a mid-May peak close to 75 million barrels, IHS said, adding gasoline stocks were the fastest to be offloaded. Clarkson’s Research estimated 218 million barrels of crude was held on tankers by June 26 from a peak of 290 million barrels in early May, while about 70.5 million barrels of oil products stored versus a May peak of 100 million barrels.
"Still, even though gas demand slipped, so did gasoline supply. The EIA reported that total motor gasoline inventories increased by 1.2 million barrels last week and are about 10% above the five-year average for this time of year. Finished gasoline inventories decreased, while blending components inventories increased last week. Distillate fuel inventories fell by 0.6 million barrels last week and are about 28% above the five-year average for this time of year.
"The EIA also pointed out that: Overall energy consumption in the United States totalled 100 quadrillion British thermal units (Btu) in 2019, only slightly less than the record set in 2018 and the third-highest level of annual U.S. energy consumption ever. About 20% of U.S. energy consumption in 2019 came from sources other than fossil fuels. Several energy sources hit record consumption values in 2019, based on data in the U.S. Energy Information.”
As we have said, we think the U.S. economy is going to have a strong comeback, and the economic data we have been getting has been backing that up. Oil demand should continue to rise, and supplies tighten, and the oil bull market is firmly intact.
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