Energies are higher this morning and equities are sharply higher after yesterday’s rate cut decision. I guess the market needed a day to digest what should be considered a bullish fundamental with the Fed choosing the more aggressive rate cut path. However, the jobs market remains a point of concern for the Fed, so we’ll have to see how this path plays out over the next few months. Job gains have slowed, and the unemployment rate has moved higher so the next two employment reports could likely be a deciding factor in how the Fed moves forward at its next meeting. The next decision will be announced on November 7, and the current probability for a cut at that meeting is 100%, with a 67% chance of a 25-bps cut and a 33% chance of a 50-bps cut. Across the pond, the Bank of England decided this morning to keep its main interest rate at 5% after cutting rates in August.
Slacking crude demand will be back in focus as traders wait to see if interest rate cuts lead to an uptick in usage. Saudi Arabia’s crude oil exports in July fell to their lowest level since August 2023. The country’s oil exports for July were 5.741 million bpd, a reduction of 5.1% from June’s exports of 6.047 million bpd. Saudi’s production rose from 8.830 to 8.941 bpd from June to July, but refinery crude throughput fell by .026 million bpd. The country also cut its October price for flagship Arab light crude to Asia to the lowest level in nearly three years due to weak demand concerns out of China. China’s oil refinery output fell in August by 6.2% compared to a year earlier, declining for a fifth straight month. The reduction in exports and prices shows how dismal the current global demand picture remains. However, China’s policymakers are expected to increase stimulus measures to help the economy reach its growth goals.
Crude
- U.S. crude inventories fell to their lowest level since September 2023.
- Midwest crude inventories fell 2.2 million barrels to 99.5 million barrels, the lowest level since December 2014.
- Goldman Sachs revised their 2025 refinery utilization rate lower on higher operational capacity, lower demand, and higher non-refinery supply.
- Crude inventory is about 4% below the five-year seasonal average.
- The lead month Brent-WTI spread remains weak at $2.75 compared to historical averages around $4-$5.
- Tensions in the Middle East have so far been shrugged off as a supply disruption in the region is unlikely.
- October WTI is shedding value against the November contract ahead of tomorrow’s expiration.
- As of 9:05 am CST: Brent crude oil up $0.58 to $74.23, US dollar index up $0.458 to 100.740 while the nearby e-mini S&P 500 futures contract is up 88.50 at 5709.50.
Diesel
- Goldman Sachs revised their 2025 distillate margin forecasts down by $5 per barrel, due to lower refinery utilization forecasts, relative demand weakness, and lower clean product tanker freight assumptions.
- West Coast jet fuel inventories were at record levels for the week ending September 6 driven by reduced demand compared with pre-pandemic levels. This has moved jet fuel refining margins on the West Coast to the lowest level in five years.
- Diesel inventories are currently 9% below the five-year seasonal average.
Gasoline
- Goldman Sachs lowered their 2025 gasoline refining margin forecast by only $2 per barrel, citing relatively robust demand as the reason for the more modest reduction.
- Gasoline inventories are slightly below the five-year seasonal average.
- Gasoline remains the strongest component in the complex partially due to the uptick in demand last week.
Propane
- Conway is trading at .6800 while Belvieu is trading at .6750.
- Conway Swap Oct24-Mar25 strip indicative midpoint ~.7251.
- Conway propane is trading at 40% to WTI.
Natural Gas
- Platts and Goldman Sachs are both calling for a 55 Bcf injection into U.S. gas storage at today’s EIA storage report.
- The anticipated storage injection would be smaller than the 80 Bcf five-year seasonal average and last year’s 62 Bcf injection.
- U.S. natural gas is now forecast to average 97.6 Bcf/day over the next seven days and 98.0 Bcf/day in the 8-14 day range.
Midwest crude inventory chart showing the lowest inventory level since 2014.
