The crude oil market did a jump, and then a dump as oil traders shrugged off bullish EIA data because it was skewed by tropical storm Barry, writes Phil Flynn.
Crude oil prices failed to hold onto gains even after a massive 10.8-million-barrel crude draw, according to the Energy Information Administration (EIA). Crude oil supply has fallen six weeks in a row erasing almost all of the 40 million barrels of upward adjustments in previous EIA reports. A very large drop in U.S. oil production, that fell by 700,000 barrels-per-day to 11.3 million barrels, gave the edge to oil bears as it seemed to suggest that perhaps the draws would not have been as large if we had not seen so much U.S. oil production get shut in.
Yet the bulls might point to a very large 1.3-million-barrel jump in domestic demand. We also saw total demand on the U.S. system, up 2.2 million barrels-per-day. Bulls could also point to 3.3 million barrels of U.S. oil export demand suggesting that global demand is still strong despite the seven-year weakness in the European Manufacturing Sector. Of course, on the other hand, there is good old Mario Draghi that more than likely will do whatever it takes. That should also boost up oil demand.
The Bureau of Safety and Environmental Enforcement (BSEE) reported that Gulf of Mexico production was down about 930,000 BPD on average. In other words, based on the trends, storm or no storm, we would have seen a big draw in crude supply regardless. Maybe not a 10-million-barrel draw, but perhaps at least 5 million.
Oil bears had some help on the perception of a slight reduction in geopolitical risk tensions. Oil popped up earlier in the week after Iran seized a UK oil tanker. Then sold off after a report by an Iranian newspaper stating that the UK government sent a mediator to Iran to discuss ways to free a British-flagged tanker seized by Iran. The report said Iran welcomed the move, yet it is unclear whether this report is true or will bear fruit.
Other geopolitical risk factors are high with North Korea shooting off some projectiles. And the United States is sending ships and a message to China that a U.S. warship will travel through the Taiwan Strait. Yet oil bulls wait.
Unleaded gasoline (RBOB) futures for their part looked solid. U.S. gasoline demand jumped by 400,000 barrels-per-day. The EIA reported that motor gasoline inventories decreased by 0.2 million barrels last week, smaller than the API's big 4.4-million-barrel jump. Global demand seems a bit stronger as gas cracks in Asia are improving.
The EIA also reported that distillate fuel inventories increased by 0.6 million barrels last week and are at the five-year average for this time of year. Overall distillate demand increased by 555,000 bpd while domestic was up by 700,000 bpd. Distillate exports fell by 145,000.
The EIA also pointed out that Saudi Arabia’s crude oil production approached a four-year low in May 2019, averaging an estimated 9.9 million barrels-per-day, more than 1 million lower than its all-time high in November 2018. Production in Saudi Arabia dropped following a December 2018 agreement by members of the OPEC to cut crude oil production. Saudi Arabia’s crude oil exports, especially to the United States, have also fallen. However, some countries, particularly China, have increased their imports of crude oil from Saudi Arabia.
We will see you in September
Reuters is reporting that, “A panel of OPEC and non-OPEC ministers which reviews the producers' deal on limiting oil supply will next meet on Sept. 12 in Abu Dhabi, two OPEC sources said on Thursday. The Joint Ministerial Monitoring Committee, which includes Saudi Arabia and non-OPEC Russia, observes oil-market developments and can make a recommendation to the countries signed up to the deal, a group known as OPEC+." Mark your calendars.
Natural gas is still under a lot of pressure. A break in temperatures is breaking the price. A storm in the Gulf of Mexico is not helping. The National Hurricane Center is reporting that, "A nearly stationary frontal system and a weak area of low pressure are producing widespread cloudiness and disorganized showers across the northern and central Gulf of Mexico. This system is expected to drift northward, and development appears unlikely due to unfavorable upper-level winds.”
We still feel oil is close to lows for the year.
Also mark your calendars for the MoneyShow San Francisco Aug. 15-17 where you can come and attend my workshop.
