Outlook: Crude and diesel futures are trading higher for the second straight day, while gasoline is higher for the third day. The expectation for a September rate cut from the U.S. Federal Reserve continues to add strength to energy prices, especially as other countries begin to slash rates. The Bank of Canada became the first G7 nation to cut interest rates yesterday when it reduced rates from 5% to 4.75%, the first cut in four years. The European Central Bank (ECB) followed suit this morning and reduced interest rates for the first time since 2019. The ECB’s key borrowing rate has been at a record high of 4% since September 2023, before today’s 25 bps reduction to 3.75%. Markets have priced in one additional reduction this year, but economists polled by Reuters last week forecasted two more cuts before year-end. The CME FedWatch Tool is showing a 67% chance for a U.S. rate cut in September. Top OPEC+ officials continued praising their latest output agreement and reiterated that they could adjust or reverse it later this year if needed to support the market. Propane prices have followed crude higher the last few days, but prompt prices remain below 70 cents for both Conway and Belvieu. Natural gas prices continue to march higher on the prospect of a lower-than-expected inventory build and hotter-than-normal temperatures in large portions of the U.S., the Middle East, and India.
Crude
- Floating oil storage in the North Sea has risen to the highest level since early 2022 (Reuters).
- Saudi Aramco lowered the official selling price for all crude sold to Asia in July, the first reduction since February, amid concerns over the strength of crude demand in Asia. (BBG)
- U.S. crude refinery runs of 17.1 million bpd at the highest level since December 2019.
- Midwest refinery runs of 4.23 million bpd last week was the second highest posting ever.
- Midwest refineries are now operating at 99.9% capacity, the highest utilization since 2018 on a seasonal basis. (Reuters)
- J.P. Morgan expects Brent oil back into the high $80s-$90 range by September and forecasts Brent to average $83 this year and $75 next year.
- According to a Reuters poll from May 31-June 5, nearly two-thirds of economists are now predicting the Fed will cut interest rates in September.
- Sweden’s Riksbank and the Swiss National Bank have also reduced interest rates this year.
- U.S. jobless claims rose to a four-week high of 229,000, higher than expectations of 220,000.
- As of 9:00 am CST: Brent crude oil up $0.24 to $78.65, US dollar index down $0.081 to 104.140 while the nearby e-mini S&P 500 futures contract is unchanged at 5366.00.
Diesel
- Diesel demand fell last week and is 5% below the five-year seasonal average.
- U.S. distillate stocks are 5% below the five-year seasonal average.
- Midwest distillate stocks are 7% above the five-year seasonal average.
Gasoline
- Gasoline demand fell last week but was 2% above the five-year seasonal average.
- U.S. distillate stocks are less than 1% below the five-year seasonal average.
- Midwest gasoline stocks are 3% below the five-year seasonal average.
Propane
- Conway is trading at .6825 while Belvieu is trading at .6900.
- Conway Swap Oct24-Mar25 strip indicative midpoint ~.7210.
- Conway propane is trading at 37% to WTI.
Natural Gas
- The EIA is expected to report an 86 Bcf injection into storage, which would be smaller than the historical five-year average of 103 Bcf and last year’s injection of 105 Bcf.
- Norwegian gas exports to the UK have been moved to a different location to compensate for the outage reported earlier this week, which is now expected to be repaired Saturday. (BBG)
- Record temperatures in India in May caused gas-fired power generation to double compared to last year. (BBG)
