Oil trade is having a hard time shaking off economic fears even after some very bullish petroleum data suggests that crude supply is tightening, and US oil production is plateauing.
Confidence in the world’s largest economy is being shaken after Biden failed to seek reelection and the attempt on President Trump’s life. Pro-Gaza and Hamas protests in Washington where they burned the American Flag and destroyed property while Israeli Prime Minister Benjamin Netanyahu gave a speech to Congress and reports that Israel has put off ceasefire talks with Hamas were in the headlines yesterday.
Even reports that China moved with another surprise rate cut was not enough to turn things around.
The People’s Bank of China on Thursday lowered the rate on its one-year medium-term lending facility to 2.3% from 2.5%—the first such cut it has made since August last year. It also injected 200 billion yuan, or about $27.54 billion, of liquidity into the market via the mechanism.
This comes against a backdrop of increasing threats to the US from our adversaries. Fox News said that, “In a press release from NORAD, the agency confirmed that they detected, tracked, and intercepted two Russian TU-95 and two PRC H-6 military aircraft operating in the Alaska Air Defense Identification Zone (ADIZ) on July 24.
NORAD fighter jets from the United States and Canada conducted the interception. This comes hours before Biden was set to address the nation in his first public address since he announced he would not be running for a second term in office.
These fears along with signs that the US economy may be flirting with an accelerating economic slowdown will put more focus on today’s GDP reading,
Yet if you look at yesterday’s Energy Information Administration supply report, there are no signs of a recession as demand surged, inventories fell and US oil production flatlined.
The EIA reported that U.S. commercial crude oil inventories decreased by a more than expected 3.7 million barrels from the previous week.
At 436.5 million barrels, U.S. crude oil inventories are about 5% below the five-year average for this time of year.
Total motor gasoline inventories decreased by a much more than expected 5.6 million barrels from last week and are about 2% below the five-year average for this time of year.
Distillate fuel inventories also decreased by much more than expected 2.8 million barrels last week and are about 9% below the five-year average for this time of year.
The EIA reported that US oil production has steadied coming in at 13.122 million b/d for the last 4 weeks.
Couple that with the fact that rig counts are down 12% from a year ago according to Baker Hughes and it will be hard for us to add more production unless we get a more reasonable regulatory environment.
On the demand side, we soared in every major category lifting the four-week moving demand totals. The EIA put demand over the last four-week period averaged 20.6 million barrels a day, up by 0.4% from the same period last year.
Over the past four weeks, motor gasoline demand averaged 9.3 million barrels a day, up by 2.5% from the same period last year. Distillate fuel demand averaged 3.7 million barrels a day over the past four weeks, up by 3.2% from the same period last year.
Jet fuel demand was up 3.8% compared with the same period last year as we saw record-breaking TSA screening over the Fourth Of July holiday week.
The petroleum supply and demand fundamentals based on the numbers and based on the fact that China did another rate cut should be very bullish.
The problem is macroeconomic fears and the fact that people are probably going to pull in their horns after the big sell-off and the NASDAQ is weighing on price sentiment.
If you don’t think we’re on the verge of a major stock market crash this opportunity to start buying some bullish calls. If you do think we’re going to have a major stock market crash, it’s best to either stay away or buy some puts.
My take is that we’re going to level the ship and the focus will return once again to the tight supply situation that we face globally so the US GDP shows signs of strength then the recession fears or economic slowdown fears may be tempered just a bit.
Today we get the Energy Information Administration (EIA) natural gas storage and the average estimate is for a 16 bcf increase.
Bulls are cheering the return of the Freeport LNG plant. This comes as the EIA reported that natural gas storage injections remain below the five-year average so far this summer.
The EIA says that injections into natural gas storage in the Lower 48 states since April 1 have totaled 950 billion cubic feet (Bcf), according to our July 18 Weekly Natural Gas Storage Report.
So far this injection season (April 1–October 31), the amount of natural gas injected into storage (less withdrawals) is 15% (166 Bcf) less than the previous five-year average (2019–23) for the same period and 15% (172 Bcf) less than the same time last year.