Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex traded under pressure, with September crude settling lower by 85 cents at 78.58. The weakness was traced to reports that China had boosted its stockpiling of crude oil in June to the highest level since mid-2020. Over the first five months of the year they have added 950 t/bd to inventories, an increase of 28 percent from the 740 tb/d added over 2022 as a whole. Despite an increase in refinery processing, China has built up ample stockpiles. This will allow them to limit purchases and work off excess inventory if prices rise. It is reported that imports from Russia are up 22 percent and imports from Iran have continued while disguised as originating from other countries. Due to sanctions, both of these trade at a discount. The market also appeared to attract selling in response to reports that Russian oil exports will jump in September as refinery maintenance limits domestic offtake, which also appears to be supporting refinery margins.
The DOE report showed commercial crude inventories fell .6 mb while gasoline and distillate fell .8 and .2, respectively. Total stocks fell .5 mb despite a lack of sales from the SPR. Crude stocks at Cushing fell to 35.7 mb, off 2.6 from last week, while refinery utilization fell .9 to 93.4 percent, helping to support margins. Exports of both crude and products rose to 2.4 mb/d compared to 1.3 last week and 2.6 last year. Total disappearance rose to 21.3 mb from 20.8 in the prior week and 20.45 last year. Gasoline disappearance totaled 8.9 mb/d, unchanged from last week, but off from last year when it totaled 9.2 mb. Distillate disappearance was stable at 3.7 mb/d.
The market will be watching for further signs of global growth potential following the Fed hike of 25 basis points, and whether China unveils further measures to stimulate their economy. The appearance that Russia is likely to increase export levels in September along with the upcoming meeting of the OPEC Monitoring Committee on August 4th should limit upside potential near term until more significant stock drawdowns begin to occur.
Natural Gas
With extreme heat remaining entrenched across much of the US, the market continues to test the upside, but has been unable to breakout in a convincing manner while trading in a surprisingly tight range. Strength seen yesterday was attributed to forecast revisions that increased demand expectations in the 15-day outlooks, while today’s weakness was similarly attached to this morning’s downward swing in temperature expectations. Today marks the fifth straight session that prices have tested the 2.76 area and been unable to convincingly exceed it. Despite the forecast swings, temperatures still look to be above average into the middle of August. If that heat can be maintained, further upside movement is likely in the coming sessions. The 2.87-2.91 range remains the target if the highs can be violated. Recent tight ranges have brought the 9, 20, and 100-day moving averages together in the 2.645-2.66 range, which marks key support on a settlement basis to avoid a test back to the 2.50 level.
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