Outlook: The energy complex is starting the day idle but remains on track for weekly gains. Geopolitical risk was a key theme for a continuation of bullish sentiment this week. Headline events included another ship being sunk by the Houthis in the Red Sea, aggressive commentary from Lebanon toward Israel, and another volley of drone strikes by Ukraine on Russian refineries. Tropical storms have also begun to populate to remind the trade of the heightened hurricane risk projected for this season. Expectations in the industry are that inventories will tighten in Q3 which would support prices lingering in the upper end of the recent trade windows. OPEC+ spare capacity for crude production is a significant limiting factor for sustained higher prices but it seems unlikely we’ll face such a scenario given the tightened economic environment throughout major economies. From a technical standpoint, the continuous daily crude chart is nearing a “death cross” with the 50-day moving average on a trajectory to cross below the 200-day moving average within the next few sessions. This would be a bearish technical indicator and could coincide with overbought markets to induce selling. This will be a development to keep an eye on next week.
Crude
- Crude prices are on track for their second consecutive weekly gain.
- Rising tension between Lebanon and Israel has fueled geopolitical risk this week.
- Tropical storm risk in the Gulf has begun to intensify with hurricane season in full swing.
- Ukraine launched several drone strikes on Russian oil infrastructure this week with another volley last night that was the largest since the beginning of the war.
- India’s crude processing in May rose 1.3% y/y. (Reuters)
- The EIA reported US crude stocks fell 2.5 million barrels last week.
- US net crude imports fell 2.5 mbpd last week.
- Baker Hughes will report rig counts at 12:00 pm CT.
- As of 8:00 am CST: Brent crude oil up $0.04 to $85.76, US dollar index up $0.164 to 105.752 while the nearby e-mini S&P 500 futures contract is down 3.25 to 5473.00.
Diesel
- The EIA reported diesel stocks fell 1.7 million barrels last week.
- US diesel demand rose 9% last week to 3.9 mbpd. 4-week average demand rose 24,000 bpd to 3.7 mbpd.
- Diesel basis throughout the Midwest remain discounted to seasonal average levels and may present local opportunities to fill storage and sell futures to capture and isolate discounted basis levels.
Gasoline
- The EIA reported gasoline stocks fell 2.2 million barrels last week.
- US gasoline demand rose 346,000 bpd last week to 9.4 mbpd. 4 week average gasoline demand rose 18,000 bpd to 9.1 mbpd.
Propane
- Conway is trading at .7625 while Belvieu is trading at .7950.
- Conway Swap Oct24-Mar25 strip indicative midpoint ~.8100.
- Conway propane is trading at 39% to WTI.
- The EIA reported propane stocks rose 1.6 million barrels last week.
Natural Gas
- Overnight weather runs removed 2 CDDs for the two-week forecast.
- European LNG imports have totaled 21.3mm mt since the start of summer which is down from 29.7mm mt last year during this period.
- The EIA will report inventories at 9:30 am CT.
- Reuters estimates nat gas stocks rose between 66 and 80 Bcf
Continuous Weekly HO: The diesel market has room to run before it finds medium-term resistance at its 200-week moving average. A test seems likely if fundamentals remain optimistic and geopolitical escalation persists.
