Outlook: WTI crude prices are taking a breather this morning after running up $6 or 8.5% over the last four days as positive U.S. economic data shifted investors’ focus from recessionary fears back to geopolitics. WTI crude is being capped by the 100-day moving average and the psychological $80 level. Nearby prices have jumped more significantly than the deferred as supply disruption concerns in the Middle East remain front and center. The 12-month calendar spread is now backwardated over $7, an increase of $2.50 from just a week ago, while the September-October spread closed in the strongest backwardation since October 2023.
The IEA released its latest monthly report this morning where they projected that global oil markets would swing from a deficit to a surplus next quarter if OPEC+ proceeds with its planned supply increase beginning in October. The IEA slightly reduced its 2024 demand growth forecast to 970k bpd and lowered its 2025 oil demand growth outlook by 30k bpd to 950k bpd due to weak demand growth expected from China. The group's total oil supply forecast for 2024 and 2025 is now102.9 million bpd and 104.9 million bpd, respectively. The IEA has a much more bearish view on oil prices through the remainder of the year than OPEC.
The July U.S. Producer Price Index (PPI) was released this morning and was reported at +2.2% year-over-year, lower than the forecast of 2.3% and lower than June’s 2.6%. Month-over-month PPI data growth was reported at 0.1%, lower than the 0.2% forecast. Core PPI growth was also lower than projections on a YoY and MoM basis. Cooler than expected inflation data will increase the probability the Fed eases rates. The CME FedWatch Tool currently shows a 50/50 probability for a 25 or 50-bps cut at the September meeting. We will get some additional feedback on the U.S. economy tomorrow morning when CPI data is released.
- Brent futures have rebounded almost 6% over the last week to just under $82 this morning, but prices are expected to recover further into the mid-80s.
- Libya’s Sharara oilfield, which produces nearly 270,000 bpd, remains closed after protests made the National Oil Corporate declare force majeure at Libya’s largest oilfield.
- A poll of Reuters analysts projects a 2-million-barrel crude draw for the week ended August 9.
- OPEC crude production in July rose by 250k bpd month-over-month to 27.34 million bpd, led by Saudi Arabia and Iraq. (GS)
- WTI crude futures are trading between the 50-day moving average as support, and the 100-day moving average as resistance.
- As of 8:55 am CST: Brent crude oil down $0.96 to $81.34, US dollar index down $0.226 to 102.735 while the nearby e-mini S&P 500 futures contract is up 47.25 at 5417.00.
Diesel
- A poll of Reuters analysts projects a 1.8-million-barrel distillate draw for the week ended August 9.
- Jet fuel demand is forecasted to decline 0.7% week-over-week to 7.15 million bpd as the peak summer travel period ends.
- Asia and Eastern Europe are the only regions expected to gain demand in the coming weeks according to upcoming flight schedules. (BBG)
Gasoline
- A poll of Reuters analysts projects a 1.1-million-barrel gasoline draw for the week ended August 9.
- Gasoline futures are up just under 4% over the last four days, the lowest gain in the energy complex.
- Gasoline crack spread has fallen $2 over the last week, to under $22.
Propane
- Conway is trading at .7475 while Belvieu is trading at .7850.
- Conway Swap Oct24-Mar25 strip indicative midpoint ~.7920.
- Conway propane is trading at 39% to WTI.
Natural Gas
- Lead month natural gas futures are trading at the highest level since July 23, but finding resistance at the 100-day moving average.
- Overnight weather runs added 3 CDDs to the two-week forecast, equivalent to a 6 Bcf increase in net implied demand. (GS)
- U.S. natural gas production decreased 0.5 Bcf/d day-over-day to 102.6 Bcf/d on Monday. GS
