Outlook: Energy markets are mixed this morning as they attempt to digest a plethora of varying market movers. Crude and RBOB are seeing gains this morning while ULSD lags lower, reflecting the fundamentals of yesterday’s inventory report. Despite the lone build in diesel yesterday, inventories still remain 34.3 million barrels below their 5-year average. Bullish fundamentals are being offset by global macro uncertainty. China has made numerous comments about taking the necessary steps to open and boost its economy while simultaneously dealing with its largest covid outbreak since Shanghai shut down this spring. Europe is racing to import as much energy as they can before the seaborne import bans take place at the end of the year. Surging prices due to the supply squeeze continue to put pressure on their economies which are becoming increasingly susceptible to recession. Finally, the US is still reviewing the final terms of the Iran nuclear deal. Additional barrels available to the market could provide relief to the market when US SPR draws halt at the end of October.
Crude
- China’s President Xi said the country will persist with opening up its economy.
- Covid cases in China have jumped to three-month highs driven by their largest outbreak since Shanghai was shut down in the spring.
- Rhine River levels are set to rise over the weekend which could allow shipments of energy along the river to return.
- President Biden received temporary permission to pause energy leasing on federal waters and lands, reversing a previous appeal deemed too vague to review.
- The US and Taiwan will initiate formal discussions focused on trade and economic initiatives following Nancy Pelosi’s visit.
- The July FOMC minutes were hawkish but broadly as expected.
- US crude exports hit a record 5 million bpd last week
- The US SPR saw a draw of 3.4 million bpd.
- The EIA reported a 7 million barrel build in crude stocks for last week.
- As of 8:07 am CST: Brent crude oil up $1.79 to $95.44, US dollar index up $0.109 to 106.683 while the nearby e-mini S&P 500 futures contract is down 3.25 to 4280.00.
Diesel
- The EIA reported a 766,000 barrel build in diesel stocks for last week.
- US diesel demand rose by 201,000 bpd last week.
- Five ships transporting close to 3 million barrels of diesel are set to move from Asia to Europe so far in August.
Gasoline
- The EIA reported a 4.6 million barrel draw in gasoline stocks for last week.
- US gasoline demand rose by 225,000 bpd to 9.3 million bpd, and its highest level this year.
- Average total gasoline demand for the past four weeks is down 4.25% from last year.
Propane
- Conway is trading at $1.0700 and Belvieu is trading at $1.0700.
- Conway is trading at 51% of crude.
- The US is exporting 48% of production as of 8/12/22.
- The EIA reported a 2.3 million barrel build in propane stocks for last week.
- Midwest inventories saw a build of 530,000 bpd.
Natural Gas
- Total US gas demand decreased to 92.3 Bcf/d yesterday.
- Total dry production increased to 94.9 Bcf/d.
- The October contract saw a negative key reversal yesterday.
- The EIA is expected to report a 34 Bcf injection today which would be 12% below the 5-year average injection.
- Overnight weather runs added 4 CDD’s to the two-week forecast.
Chinese Demand: Chinese demand remains in the spotlight as one of the world’s largest consumers. Demand has been shaky in recent months with continuous issues with covid and their zero-tolerance policies. Cases jumped to a three-month high on Wednesday, driven by an outbreak in the Hainan province. Chinese oil demand is 9.7% weaker than a year ago and global air travel is 13% below 2019 levels.
