Outlook: Energy markets are pushing lower today with nearby crude trading below $85 for the first time since January. The market is being hit by two significant bearish drivers this week with one being rising interest rates to fight surging global inflation, and the other being China’s covid lockdowns. The European Central Bank is widely expected to raise interest rates sharply when it meets tomorrow. The US Fed will meet on September 21st when a significant increase is also expected. China has roughly 65 million people subject to mobility restrictions due to the recent spike in covid cases. China’s economy is showing stress from prolonged lockdowns along with slipping energy demand. Inventory reports are delayed by a day due to the holiday with the API releasing their inventory data this afternoon and the EIA being released tomorrow morning.
Crude
- Russia reiterated that it will not supply crude, refined products, or gas to any nations that introduce price caps on Russian commodities.
- The group enforcing a price cap estimates Russia’s cost of crude production is $44.
- China has around 65 million people subject to mobility restrictions due to covid lockdowns.
- China’s crude imports climbed to a three-month high in August at 9.54 million bpd and 8% higher than July.
- US waterborne crude imports fell by 49,000 bpd to 2.6 million bpd last week.
- US crude exports rose to 3.8 million bpd in July, ahead of 3.57 million bpd in June.
- Prompt WTI’s 50-day moving average fell below its 200-day moving average forming a bearish technical indicator.
- The US SPR fell by 7.1 million barrels last week.
- Reuters is estimating a 700,000 barrel draw in crude stocks last week.
- The API will release its inventory survey at 3:30 CT.
- As of 9:14 am CST: Brent crude oil down $3.52 to $89.31, US dollar index up $0.366 to 110.580 while the nearby e-mini S&P 500 futures contract is up 4.25 to 3914.00.
Diesel
- Reuters is estimating a 900,000 barrel build in diesel stocks last week.
- The number of trucks on Chinese highways, which typically run on diesel, fell to 6.4 million on Sept 4 versus 7.3 million a month before.
Gasoline
- Reuters is estimating a 1.6 million barrel draw in gasoline stocks last week.
- The price of regular gasoline is rising again in California after seeing declines since June according to AAA data. Rising pump prices puts additional pressure on the state which is under the threat of blackouts due to a heat wave.
Propane
- Conway is trading at $1.0850 and Belvieu is trading at $1.0875.
- Conway is trading at 53% of crude.
- The US is exporting 53% of production as of 8/26/22.
Natural Gas
- Total US gas demand decreased to 92.1 Bcf/d yesterday.
- Total dry production decreased to 96.6 Bcf/d.
- Overnight weather runs added 1 CDD to the two-week forecast.
- Yesterday, the EPA rejected Cheniere Energy’s bid to exempt gas turbines from pollution limits.
- President Putin said natural gas flows through Nordstream 1 will resume if sanctions against the country are lifted.
Chinese Mobility: China’s covid zero policy continues to hold a bearish grip on energy markets. Roughly 65 million people in China are held under some form of mobility restriction which poses a significant threat to demand. The number of daily flights plunged 41% last week compared to the same period in 2019 according to China Aviation Daily.
