Oil High
Oil futures surged to new highs on the year after a drop in U.S. oil supply and a huge spike in trading volume. The crude oil price overlooked the fact that U.S. oil production actually increased for the first time in 18 weeks maybe because it was up 100,000 barrels a day and instead focused on the fact that oil supplies fell by a more than expected 3.22 million barrels.
Traders that follow these numbers know that the drop in crude oil supply would have been a lot more substantial if you subtract the increase 2.539-million-barrel build in supply on the West Coast. In the parts of the report that reflects a larger part of the country, the report on crude was much more friendly. We saw a big 3.805 drop in U.S. gulf coast supply which may indicate a couple of things. It could be that we are seeing imports being impacted by falling Venezuelan and Nigerian production. Overall U.S. crude oil imports averaged 7.7 million barrels per day last week, down by 134,000 barrel a day from the previous week. It could also be due to the fact that some imports into the Gulf were delayed due to tropical storm activity that may have slowed imports.
Crude oil supply in the Midwest fell by 1.692 million barrels and in the all-important delivery point of Cushing, Oklahoma, supply fell by a more than expected 1.363 million barrels. Supply in these two key areas should continue to fall over the next few weeks as we will just begin to feel the impact from the Canadian Wildfires in Alberta. This along with the fact that we are seeing improving oil refinery inputs averaging over 16.4 million barrels per day as refiners operate at 90.9%, should signal more drops in crude inventory in the coming weeks.
But not all was wildly bullish. The EIA reported that gasoline inventories rose by 1.0 million barrels as demand slipped 148,00 barrels a day last week to 9.568 million barrels. Still even with the drop, demand is still up 2.6 percent from last year. Yet the recent slowdown in weekly demand may indicate that consumers are showing some reluctance to the recent increases in pump prices. Gas prices have risen to 236.2 a gallon.
Gasoline production increased last week, averaging over 10.1 million barrels per day. Distillate fuel inventories increased by 1.8 and demand is up by 0.4% from the same period last year.
With more bankruptcies coming in the oil patch it will be interesting to see if the U.S. can continue to boost production. U.S. producers may have a window as Saudi Arabia raised prices to U.S. customers giving the U.S. producer a little better chance to compete. Maybe it was because Saudi Arabia feels they have won the price war or maybe it is because they need the cash. Moody’s down graded Arabian credit yesterday. Still the lack of capital and the negative balance sheets of many of the shale producers will make it hard to ramp up output even with Saudi Arabia calling some of the dogs off.
Natural gas, that has been surging, is taking a pause ahead of the Energy Information Agency supply report. We are expecting to see supply increase by about 83 bcf’ s. The natural gas trade will continue to focus on weather domestically and falling U.S. production. Internationally the talk is that demand is not living up to expectations.
The International Energy Agency reported that growth in natural gas demand will slow to 1.5% this year globally by 2021 which last year predicted a gas demand growth of 2% for the same period. They say that cheaper coal prices and strong renewables growth are among the reasons which are blocking gas from expanding more rapidly in the power sector. While gas demand growth is predicted to remain “weak”, global LNG exports will increase “substantially”. The IEA said that LNG capacity will increase by 45% during the same period, mostly from the U.S. and Australia which it predicts will rival Qatar as the world’s largest LNG exporter.
Gold was shining yesterday not only on a weaker dollar but strong physical demand. Reuters said that one company reported that demand for gold in its UK customer base has been 59 percent higher in June than the average of the last 12 months compared to 5 percent higher in the other nine of its top 10 markets and that is because of Brexit fears. UK gold dealer, The Pure Gold Company, said it had seen a 19 percent increase in inquiries to buy gold bars over the weekend compared to last week.