Outlook: Energies are sliding this morning as the focus has shifted to upcoming rate hikes with inflation continuing to climb. The dollar index has pushed to 20-year highs as inflation pushed over 9% to 40-year highs. The threat of a 100 basis point rate hike is putting downward pressure across commodities and equities. The EIA released a bearish inventory report yesterday which could be adding to the downward move today. Builds across the board were accompanied by falling demand across oil and products. Crude inventories are seeing help from SPR releases, however, this will come to an end in October. Inventories remain well below 5-year averages across oil and products and occasional weekly builds aren’t enough to change the fundamentals of the complex quite yet. The flood of bearish market news this week has crude testing the 200-day moving average of $93.41 for the first time since December this week.
Crude
- Aggressive interest rate hike expectations are weighing on the market today after inflation data exceeded expectations yesterday.
- The Bank of Canada announced a 100 bp rate hike to help tame inflation.
- Chinese crude imports in June sank to their lowest level since July 2018.
- WTI traded below the 200-day moving average for the first time since December.
- WTI traded below its Bollinger band intraday on Wednesday but failed to close below that level.
- The Brent and WTI Dec-Dec spread touched the lowest intraday levels since April on Wednesday.
- Total petroleum demand fell by 1.7 million barrels last week.
- The EIA reported a 3.2 million barrel build in crude stocks last week.
- The US SPR fell by 6.9 million barrels.
- As of 8:15 am CST: Brent crude oil down $1.75 to $97.82, US dollar index up $0.886 to 108.843 while the nearby e-mini S&P 500 futures contract is down 55.25 to 3749.00.
Diesel
- The EIA reported a 2.7 million barrel build in diesel stocks for last week.
- Diesel demand fell by 1 million barrels last week.
- Diesel inventories are 31.8 million barrels below the 5-year average.
Gasoline
- The EIA reported a 5.8 million barrel build in gasoline stocks for last week.
- Gasoline demand fell as much as 14% last week down 1.3 million barrels.
- Gas inventories are 12.036 million barrels below the 5-year average.
Propane
- Conway is trading at $1.1250 and Belvieu is trading at $1.14.
- The EIA reported a 2.9 million barrel build in propane stocks for last week.
- Midwest inventories saw a build of 869,000 barrels.
- Conway is trading at 49% of crude.
- The US is exporting 64% of production as of 7/13.
Natural Gas
- Total US gas demand decreased by 1.8 Bcf/d to 93.6 Bcf/d yesterday.
- The EIA is expected to report a 61 Bcf injection this morning.
- The five-year average build is 55 Bcf.
- Overnight weather runs added 3 CDD through the two-week forecast.
Crude demand: Crude prices remain up 20 dollars this year with supply outages pressuring the market. The demand for crude oil continues to outpace supply with the economy not slowing enough to balance the market. The market may need to see a high level of demand destruction before the balance is restored.
