Oil prices had an epic fail after trying to break out of their downtrend near the 9650 ten-day moving average, which came after the Energy Information Administration (EIA) reported that gasoline demand in the United States came to a screeching halt.
According to the EIA, last week, gasoline demand plummeted to 8.541 million barrels a day, a whopping 704,00 barrels a day less than a week ago and even lower than demand during the same period during the COVID 19 lockdown of the economy in 2020 when demand was 8.714 million barrels a day.
That means that Americans all parked their cars last week, perhaps in the middle of the road or bought Tesla’s, which might explain the spike in utility darling natural gas. Not actually, natural gas spiked on the Freeport LNG terminal, but more about that later.
The reality is there is no rational explanation for the Energy Information administration’s sharp drop and demand week over a week unless there is a problem with the data or perhaps the data is being spread off over the last couple of weeks.
It wouldn’t make sense that gasoline demand would plummet after gasoline prices have fallen 48 days in a row. It’s possible that some people put off purchases with the hopes that prices would be lower, but in the real world, I don’t think that’s what is happening.
We normally don’t go from an inflationary frenzy to a deflationary frenzy in one week—besides data from other services like our buddies from Gas Buddy and my contacts in the gasoline supply business that are showing much more robust demand.
Before that shocking report, oil prices looked like they wanted to break out after OPEC plus Russia decided to increase oil production by a laughable 100,000 barrels a day. This seemed to be a direct slap at President Biden, who wasted a lot of political capital to get the Kingdom to raise oil production substantially.
I think the best line of the day came from Javier Blass at Bloomberg, who suggested that President Biden used more oil to travel to the Middle East than he got back from OPEC with this production increase.t none of that seemed to matter after the EIA report on that stunning drop in demand.
Yet Saudi Arabia this morning doesn’t seem to be too concerned about demand.
Either Saudi Arabia believes that demand for the oil is gonna be extremely strong in Asia, or they’re trying to raise prices to encourage Asia to buy barrels from other countries, perhaps their good friends in Russia, at a huge discount. The Saudis also raised oil prices for the United States in September.
Still, Saudi Arabia and the UAE are trying to send a signal to the market that they do have spare production capacity. This morning they said that that increase of 100,000 barrels a day was a “goodwill gesture.” OPEC sources are reporting that OPEC plus our savings spare production capacity for a possible winter crisis. and based on what we saw in yesterday’s report, a winter crisis is something they may have to avert.
Going back to the data from the EIA, it’s almost astounding to me that the market was so fixated on gasoline demand that it was wrong and seemed to dismiss the fact that distillate supplies plummeted and drove supplies to dangerously low levels going into winter. The EIA reported that distillate fuel inventories decreased by 2.4 million barrels last week and are about 25% below the five-year average for this time of year.
Oh yes, I know that the ultra-low sulfur diesel contract, or heating oil as the old timers call it, performed better than any of the petroleum products on the board, but as we get into the last half of August, that contract should normally lead.
What is also disturbing you look at the fact that the U.S. has the lowest amount of sour crude in the Strategic Petroleum Reserve (SPR) perhaps ever. That is a major concern because we export a lot of that heavy oil overseas diesel is in short supply. If you ask refiners need to ramp up diesel production, the heavier sour blends of crude generally yield more of that product. The SPR released 4.7 million barrels last week. That put the supply at 469.9 million barrels of those 235 million barrels that are sweet, and the precious sour is below that, maybe for the first time at 234.9 million barrels.
The bearish traders also latched onto the headline crude oil number. The EIA reported that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 4.5 million barrels from the previous week. At 426.6 million barrels, {{8849|U.S. crcrude oil inventories are about 7% below the five-year average for this time of year.
Total motor gasoline inventories increased by 0.2 million barrels despite the reported crash in demand last week and are about 3% below the five-year average for this time of year. Both finished gasoline inventories and blending components.
Total product demand is, you believe, the data over the last four-week period averaged 19.9 million barrels a day, down by 3.0% from the same period last year.
Whether you believe the data or not, it’s the data that you have to live with. Obviously, the rejection of the breakout has to keep the market on guard, but at the same time, even though whale took out the low for this week, they seem to find strong support near the lower Bollinger band and psychological support near $90 a barrel the Saudi price increase news should give the oil a bounce.
As I pointed out this week, we might have to get through mid-month before oil kicks into its strong seasonal uptrend. In the meantime, we may have to battle technical forces and bad data. Hedgers should use this opportunity to start locking in hedges ahead of winter because the risks are still on the upside.
Natural gas prices that started to drop a little bit, I’m expecting that record-breaking heat could cool off a little bit and reverse courses on some encouraging news from the Freeport LNG export terminal. Natural gas traders remember very clearly when it appeared that natural gas prices were going to continue to go parabolic. That explosion at the Freeport LNG terminal caused prices to plummet. The market had been pricing in record exports of LNG from the United States, and the closure of that LNG terminal reduced exports dramatically, causing prices to fall and natural gas inventories to rise.
Bloomberg News reported that U.S. natural gas prices surged after a key export terminal in Texas reached an agreement with regulators to restart as soon as October after an explosion.
Freeport LNG, which was shut down in June after a blast, has agreed with the Pipeline and Hazardous Materials Safety Administration to resume operations in early October at almost full capacity, the operator said in an emailed statement Wednesday. That would boost demand for natural gas by nearly 2 billion cubic feet a day, equivalent to roughly 2% of domestic output.