Energy Brief for July 21.23
by market analysts Stephen Platt and Mike McElroy
Crude oil prices maintained their recent range of 74-77 basis September, gaining 1.23 today to settle at 76.58. Despite the relatively restricted action in crude, the products have strengthened with the September 2-oil crack reaching 38.00, its highest level since March, while the September gasoline crack reached a new high of 38.80 today.
The strength reflects the low stock levels in gasoline as firm consumption and strong exports keep inventories below the 5-year range. In distillate, stocks are also at the low end of their 5-year range.
Further strength to refining margins will be contingent on whether inventory levels, particularly for distillate, improve as we approach winter. The crack margins look to be overbought particularly in gasoline. Any sign of weakness has potential to undercut some of the underlying strength to crude in the near term.
Prices broke out to the upside yesterday, violating the 100-day moving average and settling with a gain of over 14 cents. That was followed up with some minor retrenchment today as the September contract ended with a loss of 2.4 cents at 2.707. Yesterday’s strength was credited to the weekly storage injection of 41 bcf, which was below estimates, but in reality much of the rally had taken hold prior to the release. Warm revisons to the forecast had the market trading higher early in the session, with stops triggered above the 2.65 level further extending prices prior to the report. Today’s setback came on light volume, with profit taking aided by forecasts for a minor drop in national demand over the weekend before picking up again early next week. The ability to hold much of yesterday’s gains is a positive sign for the market, and if the heat is maintained next week look for the September to target the 2.87 area next, which would mark a 50 percent retracement of the break since early March. Further weakness will find initial support near 2.67 and then down at the 9-day moving average at 2.61.
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