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Outlook: Energy markets are still letting the dust settle after the OPEC meeting and EIA data yesterday. Crude is facing a strong support level of around $90 while future gas and diesel losses may be limited due to a drop in refinery run rates. Bloomberg believes refinery runs have peaked this year which will make it difficult to recover the supply deficits seen in both products. The backwardation in WTI has continued to shrink with the releases from the SPR and the discount to Brent pushes wider. Saudi Arabia increasing oil prices over the benchmark is a key indicator that the region’s supply situation may remain tight. OPEC+ decided to increase production in September but the market was expected more with the increase only covering 0.1% of demand. US gasoline demand fell again below pre-pandemic levels and refineries are producing less gas because of it. Refiners cut gasoline yield to 57.5% in July, compared to 63.4% in 2020.
Crude
- OPEC+ announced a 100,000 barrel production increase for September.
- Saudi Arabia raised oil prices for buyers in Asia to record levels, a signal that the world’s largest exporter sees the region’s market remaining tight.
- Yesterday, nearby WTI closed at its lowest level in 6 months.
- The US and Iran will resume talks this week regarding a nuclear deal.
- Texas oil and gas drilling permits dropped by 245 on a month-over-month basis.
- The prompt WTI spread has fallen below $1 as backwardation decreases due to supply builds.
- The US government weather experts at NOAA will update their 2022 Atlantic hurricane forecast today.
- The EIA reported crude inventories rose by 4.4 million barrels last week.
- The US SPR fell by 4.6 million barrels last week.
- Crude stocks are 29.4 million barrels below the five-year average
- As of 8:01 am CST: Brent crude oil down $0.01 to $96.77, US dollar index down $0.278 to 106.228 while the nearby e-mini S&P 500 futures contract is up 2.25 to 4158.00.
Diesel
- The EIA reported a 2.4 million barrel draw in diesel inventories last week.
- Implied diesel demand, which includes exports, rose by 264,000 bpd last week.
- Diesel stocks are 36.5 million barrels below the five-year average.
Gasoline
- The EIA reported a 163,000 barrel build in gasoline inventories last week.
- The four-week average consumption of US gasoline fell over 1 million bpd below pre-Covid levels.
- Gasoline stocks are 10.1 million barrels below the five-year average.
Propane
- Conway is trading at $1.10 and Belvieu is trading at $1.1225.
- Conway is trading at 49% of crude.
- The US is exporting 60.8% of production as of 7/27.
Natural Gas
- Total US gas demand decreased by 2.2 Bcf to 96.1 Bcf/d yesterday.
- US regulators will allow Freeport LNG to resume partial operations in October.
- The EIA is expected to report a 28 Bcf injection into storage today.
- Overnight weather runs added 3 CDDs from the two-week forecast.
Continuous WTI: Nearby WTI slipped to its lowest level in 6 months following a larger-than-expected inventory build last week. Crude will find psychological support at $90 along with fundamental support with inventories remaining 29.4 million barrels below 5-year averages.
