Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
Crude oil recovered from losses linked to the unexpected build in US crude and gasoline inventories indicated in today’s DOE report, settling slightly higher at 80.90 basis August. Strength to crack margins was apparent on refinery disruptions in Russia due to drone attacks by Ukraine, and on ideas that demand will seasonally strengthen in gasoline. Buying interest after the report also reflected nervousness over Middle East tensions as prices failed to respond to dollar strength and reports that afloat inventories had built during May.
The DOE report showed crude inventories rising unexpectedly by 3.5 mb to 460.7 compared to 453.7 mb last year. Cushing stocks fell .2 and stand at 33.9 mb. Gasoline inventories rose 2.7 mb to 233.9 versus 222 last year. Distillate stocks fell .4 mb. Total stocks of crude and products rose 8.2 mb. Refinery utilization dropped to 92.2 percent, a decline of 1.3. Disappearance levels of crude and products fell by .4 tb/d to 20.7 mb. Gasoline disappearance was lower by .4 mb to 9.0 mb and compares with 9.3 last year. Net exports of crude and products remain moderate at 1.6 mb/d compared to 2.9 last year.
Overhead resistance should develop in the near term on the unexpected build in inventories of crude and gasoline in today’s DOE report. The market is sensitive to dollar fluctuations and inventory variations both afloat and onshore. Underlying strength to the US dollar relative to other countries could be a drag on demand, keeping inventories stable. Non-OPEC production needs to be watched given the potential that US output levels could tail off in early 2025 as efficiencies in existing producing wells fall and the decline in rig counts begins to have an impact on overall production levels. Expect a consolidation in the 78-82 range basis August reflecting a stable inventory environment. A penetration of 82.50 opens up the potential for a move back toward 85.00, while critical support exists near the 100-day moving average currently at 77.99.
Natural Gas
Early-week strength again failed to follow through as the market gave back 8.5 cents yesterday and slipped another 11.8 cents today to settle at 2.745. The expiration of the July contract added to the volatility as it closed lower by 12.8 cents to go off the board at 2.628. Poor LNG flows continued to weigh on the market, as maintenance at Sabine Pass and unplanned slowing at Corpus Christi weakened volumes to under 12 bcf yesterday. The large storage overhang is also lurking prominently in the face of rally attempts. Tomorrow’s storage estimates suggest a 51 bcf injection compared to average at this time of year of 85 to continue to chip away at the excess. A number in line with expectations would still leave stocks more than 20 percent above the 5-year average. June continues to head toward being the hottest on record as daily revisions oscillate cooler and warmer, but strong renewable generation, ample supplies, and improving production have reigned in rallies. Today’s drop to new lows for the move and violation of the 200-day moving average portends follow-through that likely tests the late May low at 2.605, with support near 2.70 on the way down. Fading hopes for a sustained summer rally will first need to push past resistance now at the 200-day near 2.84, and then settle above the 9-day currently at 2.90 to shake out upside momentum.
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