Are the stars out tonight? Some days all the bullish stars align. Some call it a Doja Star bottom but really what we are seeing is the price of oil and products acknowledging the increasingly bullish underlying fundamentals. Oil and products are back on an upward trek as the Energy Information Administration (EIA) reported that demand was much better than previously reported. In fact, it broke a record. Now they tell us.
The EIA also reported that US oil production fell in the month of May for the first time since January. That was less than previously reported. This comes as weekly crude oil stocks in the US fall for the fifth week in a row against a backdrop of rising tensions in the Middle East and the possibility of a wider war and the oil sellers who sold oil on hopes of an Israeli Hamas ceasefire must change course.
Those who thought that the Fed could not cut rates this year also have to change course after changes to the Fed statement and comments by Fed Chairman Jerome Powell. The EIA acknowledged that they had underreported gasoline and oil demand by a mile.
In fact, as reported by Reuters, “U.S. oil demand rose to a seasonal record in May as American cars guzzled the most gasoline since before the pandemic, data from the U.S. Energy Information Administration (EIA) showed on Wednesday.”
Total crude oil and petroleum product supplied, the EIA’s proxy for demand, rose by 792,000 barrels per day (bpd) month-over-month to 20.80 million bpd in May, the data showed. That is the highest monthly figure since August and a record high for the month of May. Reuters wrote that “The data marks a significant reversal in the trajectory of U.S. oil demand: weekly updates from the EIA had pegged oil demand for May at just around 20 million bpd.
Demand for gasoline alone rose to a post-pandemic high of 9.40 million bpd, the most since August 2019. The previous post-pandemic high for U.S. gasoline consumption was 9.36 million bpd in June 2021. Gasoline demand in the U.S. typically peaks during the summer driving season. This data and the adjustments should have traders and hedgers as to whether they are still overestimating US oil production and underestimating petroleum demand.
In fact, based on the EIA weekly Petroleum Status report data, it is likely that they still are. Based on the data the supply deficit is starting to speak for itself.
According to the EIA report, petroleum demand is higher in every major category and supply is below average in every major petroleum category.
The EIA reported that U.S. commercial crude oil inventories decreased by 3.4 million barrels from the previous week. At 433.0 million barrels, U.S. crude oil inventories are about 4% below the five-year average for this time of year.
Total motor gasoline inventories decreased by 3.7 million barrels from last week and are about 3% below the five-year average for this time of year.
Distillate fuel inventories increased by 1.5 million barrels last week and are about 7% below the five-year average for this time of year.
On the demand side, the EIA said that total petroleum demand over the last four-week period averaged 20.5 million barrels a day, up by 1.4% from the same period last year. Motor gasoline demand based on product supplied averaged 9.2 million barrels a day, up by 4.2% from the same period last year.
Distillate fuel demand based on product supplied averaged 3.7 million barrels a day over the past four weeks, up by 3.2% from the same period last year.
Even Jet fuel demand was up 1.2% compared with the same four-week period last year.
Part of this report also suggests that U.S. oil production is starting to peak and could start to fall. We’ve seen a massive drop in rig count and regulatory uncertainty has kept many investors away from investing in drilling. If the polls suggests that Kamala Harris could enter the White House it could be a devastating blow for investment in U.S. oil and gas.
It is no secret that Harris is one of the most anti-fossil fuel politicians and pro-New Green Deal in Washington and that is saying a lot. Those who put forth the idea that Biden had no impact on U.S. oil and gas production because we saw US oil and gas producers drive production to a record high really don’t understand the lag time it takes to bring the oil and gas to the market.
There is no doubt that most of the production gains were made on private land. What is more, what we are seeing in the data is the damage from Joe Biden’s anti-US energy policies. The supply deficit we are going into is partly due to the energy policies put in place by the Biden administration.
In fact, I would argue that the geopolitical risk factors that we are seeing today in oil have a lot to do with Joe Biden’s foreign policy. I warned early on that it was a mistake to engage Iran and it was foolish to resurrect the flawed Iran JCPOA deal.
The Biden administration freed billions of dollars of frozen assets for Iran and allowed them to skirt sanctions giving them more billions. That among other things has allowed Iran to fund Hamas and Hezbollah and the Houthi rebels.
That funding of Hamas's October 7th horrific terror attack on civilians in Israel. As Israel moves to defend itself and try to rescue civilian hostages it is raising the risk of a larger regional war.
The Wall Street Journal reported, “Israel has determined that it killed top Hamas military commander Mohammed Deif in a July airstrike, the country’s military said Thursday, eliminating a planner of the Oct. 7 attacks and a militant it had tried to kill for decades."
“Top Iranian officials will meet the representatives of its regional allies to discuss potential retaliation against Israel after the killing of the Hamas leader in Tehran.", sources told Reuters.
The final bullish aspect is that the Fed is more than likely going to cut rates in September which we already knew but after the Fed statement yesterday pretty much confirms that it’s the direction we’re going. More focus on the Fed dual mandate and not just inflation pretty much ensures a rate cut unless the data changes its stars alignment.
The natural gas forecast backed off after a pretty good run-up on concerns about the heat wave not being as hot and the possibility that the inventories will come in higher than expected.
Reuters is reporting that U.S. utilities likely added a near-normal 31 billion cubic feet (bcf) of natural gas into storage last week, a Reuters poll showed on Wednesday. That, is compared with an injection of 15 bcf during the same week a year ago and a five-year (2019-2023) average increase of 33 bcf for this time of year.
In the prior week ended July 19, utilities added 22 bcf of gas into storage USOILN=ECI. If correct, the forecast for the week ended July 26 would increase stockpiles to 3.262 trillion cubic feet (tcf), about 8.8% above the same week a year ago and 16.2% above the five-year average for the week. The U.S. Energy Information Administration (EIA) will release its weekly storage report at 10:30 a.m. EDT (1430 GMT) on Thursday.’
There were 90 total degree days (TDDs) last week compared with a 30-year normal of just 91 for the period, according to data from financial firm LSEG. TDDs measure the number of degrees a day’s average temperature is above or below 65 degrees Fahrenheit (18 degrees Celsius) to estimate demand to cool or heat homes and businesses.