API Report Bullish End of Expectations

CRUDE OIL

September Crude Oil fell right to the 21-day moving average overnight and bounced off that level. China’s CPI came in below expectations overnight, falling to just +0.2% year on year, which indicates weak consumer demand. For the weekly EIA report today, traders are looking for US crude oil stocks to show a drop of 250,000 barrels last week, with gasoline down 1.9 million and distillates down 300,000. The API report yesterday came in at the bullish end of expectations with Reuters reporting crude oil stocks down 1.92 million barrels and gasoline down 2.95 million. Refinery runs are expected to be up 0.6% from last week’s 93.5%. In their short-term energy outlook yesterday, EIA said they expect a supply deficit next year, which was opposite from their previous forecast calling for a surplus. They expect OPEC+ production to be lower than their announced targets though the rest of this year and 2025. They also look for world output to average 104.6 million barrels per day, down 100,000 bpd from their previous forecast, and consumption to average 104.7 million bpd, up from a previous forecast of 104.5 million. BP said at its annual outlook that it expects oil demand to peak next year if the currently trajectory continues and for it to fall rapidly if the limits from the 2015 Paris climate agreement are held. Fed Chair Powell’s comments  yesterday suggest the case for cutting rates is getting stronger, which would be positive for demand. Negotiations on a Gaza cease-fire resume today.

PRODUCT MARKETS

Last weekend was expected to be the peak driving event of the summer, and today’s EIA report will give a partial indication of whether it met those expectations. The trade is looking for a 1.9 million barrel decline in US gasoline stocks, and the API number last night exceeded expectations with a decline of 2.95 million. Last week’s EIA report showed an implied gasoline demand number of 9.424 million barrels per day for the week ending June 28, which was the highest since November but short of 9.599 million for the year prior.

NATURAL GAS

So far, September Natural Gas has managed to avoid testing Monday’s 4 ½-month low. Hotter than normal weather is expected across the lower 48 at least through July 24, with some extreme heat showing up in the southeastern US through July 19. Recovery efforts from Hurricane Beryl seem to be going slower than anticipated, particularly in the Houston area, which may be slowing power usage temporarily. Energy analyst LSEG says gas flows to the seven big LNG plants fell to 12.2 billion cubic feet per day so far in July after Freeport LNG in Texas shut ahead of Hurricane Beryl on Sunday. This was down from 12.8 bcfd for June. LSEG also reports that output in the lower 48 states rose to an average of 102.4 billon cubic feet per day in July, up from an average of 100.2 bcfd in June and a 17-month low of 99.5 bcfd in May. LSEG expects demand in the Lower 48, including exports, will rise from 105.7 bcfd this week to 107.0 next week. A Reuters poll of analysts call for a net injection of 49-56 bcf for tomorrow’s EIA weekly storage report.

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