Outlook: Energies are trading higher for a second straight day after yesterday’s huge move to the upside. WTI crude futures settled $3.18 higher yesterday, the largest single-day gain since October of last year on geopolitical risk and a crude draw of 3.44 million barrels. Iranian leaders have ordered retaliatory attacks on Israel for the killing of the Hamas political leader in Tehran. The escalating tensions in the Middle East will keep prices firm for at least the short term. If there are no energy supply disruptions, the geopolitical risk premium could quickly exit the market.
The Federal Reserve left interest rates unchanged yesterday but said it could start cutting rates as early as September. The CME FedWatch tool shows a 100% probability for a rate cut in September, with an 87% chance of a 25 bps cut, and a 13% chance of a 50 bps cut.
Top ministers for OPEC+ are meeting this morning and have decided to keep their oil policy unchanged according to two OPEC+ sources (Reuters).
Earnings season for several big major oil companies kicked off this week. BP beat analysts expectations with second-quarter earnings of $2.8 billion and raised its dividend by 10%, but revenues lagged analyst forecasts. Shell reported a second-quarter profit of $6.3 billion, which topped analyst's forecasts but fell 19% from the prior quarter. Shell said it would buy back an additional $3.5 billion in shares over the next three months. Weaker refining margins is the main reason for revenue and profit reductions in the second quarter for both European companies. Exxon Mobil and Chevron report on Friday.
Crude
- WTI crude futures are capped by the 200-day moving average.
- The sharp move higher yesterday moved crude and products out of oversold territory.
- During yesterday’s volatility, over 300k Brent call options traded, the largest amount since April. BBG
- U.S. crude inventory of 433 million barrels is 4% below the five-year seasonal average.
- U.S. crude production was listed at 13.3 million barrels for the fourth straight week.
- U.S. crude exports of 4.9 million barrels was the highest since April 19.
- Refining efficiency of 90.1 was the lowest level since May 10 as several refineries throughout the country were offline due to storms across the Midwest or maintenance issues.
- As of 8:45 am CST: Brent crude oil up $0.57 to $81.41, US dollar index up $0.201 to 104.060 while the nearby e-mini S&P 500 futures contract is up 40.00 at 5598.00.
Diesel
- Diesel inventory of 127 million barrels is almost 6% below the five-year seasonal average.
- Diesel demand is 3% below the five-year seasonal average.
- The heat crack spread is hovering around $25.
Gasoline
- Gasoline inventory of 224 million barrels is 3% below the five-year seasonal average.
- Gasoline demand is around 2% above the five-year seasonal average.
- The gasoline crack spread is hovering around $25.
Propane
- Conway is trading at .7425 while Belvieu is trading at .7800.
- Conway Swap Oct24-Mar25 strip indicative midpoint ~.7825.
- Conway propane is trading at 40% to WTI.
Natural Gas
- The EIA is expected to report a 33 Bcf injection into storage for the week ended July 26, which would be smaller than the 38 Bcf historical five-year average, but larger than last year’s 25 Bcf injections.
- Current natural gas storage is 16% above the five-year average.
- U.S. natural gas demand is expected to average 105.9 Bcf/day over the next 7 days and 106.4 Bcf/day in the 8-14-day range. (Platts)
