Outlook: Energy prices are steady to slightly lower this morning despite a bullish API report that showed a crude draw of over 5 million barrels and a gasoline draw of almost 3.7 million barrels. The market seems to be digesting the IEA’s report yesterday that called for a shift to a surplus in the 4th quarter if OPEC+ starts unwinding its voluntary production cuts, and more geopolitical risk premium is being removed from the market as Iran has yet to retaliate against Israel.
Year-over-year CPI was reported this morning at 2.9%, slightly under the expectation of 3.0%. Core CPI was reported at 3.2%, in line with expectations. Month-over-month CPI and core CPI were both reported at 0.2%, in line with expectations, increasing bets of a smaller 25 bps cut in September.
Total production in the U.S. Permian Basin rose to 6.2 million bpd in June, the second highest month on record, while new well production per rig increased to 1.4k bpd, the highest level in over two years. Operating efficiencies in the Permian Basin have led to increased production despite decreasing well counts and lower operating expenses. Producers are now capable of extending wells to as much as three miles, adding more wells on a single drilling pad, and fracking several wells at one time. Sever producers have increased their full-year production output targets in their 2Q24 earnings reports. (Reuters) Increased efficiencies in the Permian Basin is one of the main reasons the U.S. continues to set production records.
Tropical Storm Ernesto is expected to develop into a hurricane as early as today. Ernesto is currently moving over eastern Puerto Rico but is projected to move north in the Atlantic Ocean and not make landfall in the U.S. According to the National Hurricane Center, wind speeds are anticipated to top out around 115 mph on Friday, before weakening as it heads north to cooler waters. There could still be some rainfall and elevated winds on parts of the East Coast, but energy infrastructure should be safe.
- Sources citing the API reported a crude draw of 5.205 million barrels, well above the Reuters poll of a 2-million-barrel draw.
- Call options on crude have seen the highest 30-day average trading volume since May as the market monitors Iran’s retaliation on Israel. (GS)
- Iran scheduled military exercises in the Caspian Sea starting last night. (BBG)
- The four-week average of Russia’s seaborne crude exports increased for the second week in a row, rebounding slowly from the lowest level in 11 months reported in late July. (BBG)
- Russia pumped more than the production levels set by OPEC again in July, with Russia self-reporting 67k bpd of overproduction, and OPEC reporting 111K bbd of overproduction. BBG
- As of 8:35 am CST: Brent crude oil up $0.11 to $80.80, U.S. dollar index down $0.040 to 102.340 while the nearby e-mini S&P 500 futures contract is up 5.00 at 5464.00.
Diesel
- Sources citing the API reported a distillate build of 612,000 barrels, higher than the Reuters poll that suggested a 1.8-million-barrel draw.
- A distillate build would be welcome as the current inventory is at the bottom of the five-year seasonal range.
- The heat crack remains at the lowest level since early December, which could mean weaker crude prices compared to product prices in the coming weeks.
Gasoline
- Sources citing the API reported a gasoline draw of 3.689 million barrels, higher than the Reuters poll that suggested a draw of 1.1 million barrels.
- China’s recent uptick in clean energy and electric vehicles has dampened gasoline sales in the holiday travel season. (BBG)
- Gasoline sales at two large Chinese retailers have fallen by over 5% since the start of July, in a period that has typically seen rising gasoline demand in the last few years. (BBG)
Propane
- Conway is trading at .7500 while Belvieu is trading at .7800.
- Conway Swap Oct24-Mar25 strip indicative midpoint ~.7920.
- Conway propane is trading at 39% to WTI.
Natural Gas
- Dutch natural gas remains near the highest level since December but has pulled back slightly as gas continues to flow to Europe from Russia.
- U.S. natural gas demand is forecast to average 101.3 Bcf/day over the next 7 days and 104.0 Bcf/day in the 8-14-day range. (Platts)
- U.S. natural gas production decreased 0.9 Bcf/d day-over-day to 101.5 Bcf/d yesterday. (GS)
Permian Region oil production chart:
