Energy
The weaker than expected US CPI print yesterday, along with the weaker US dollar provided a boost to risk assets, including oil, with Brent settling more than 1.1% up on the day. The release has seen the market reassess the degree to which the Fed may hike in September, although our US economist still believes the case for a 75bp hike is strong.
However, the strength seen in the market yesterday has not carried through into early morning trading today, with Brent coming under some renewed pressure. The market has taken some further comfort from the restart of oil flows along the southern route of the Druzhba pipeline after Hungary’s MOL Group agreed to pay the transit fee to Ukraine. However, the fee paid apparently only covers flows to Slovakia and Hungary (where MOL has refinery operations), and not the Czech Republic.
In addition, the EIA’s weekly release reported that US commercial crude oil inventories increased by 5.46MMbbls over the last week, which was very different from the roughly 1MMbbls decline the market was expecting. However, when taking into consideration SPR releases, the total US crude build was a much more modest 160Mbbls. Whilst refiners increased utilisation rates by 3.3 percentage points over the week, lower crude oil exports helped with the inventory build. US crude oil exports fell by 1.4MMbbls/d to 2.11MMbbls/d over the week- the lowest weekly export number since January. These lower exports come despite the large WTI/Brent discount that we have seen.
A more supportive factor of the report was the refined product side, where US gasoline inventories declined by 4.98MMbbls over the week. Stronger gasoline exports would have helped, however, a pick-up in domestic demand was the key driver, with implied demand increasing by 582Mbbls/day week-on-week. While a large increase, demand is still below the five-year average. This suggests that prices are leading to some level of demand destruction.
On the agenda for today, both the IEA and OPEC will be releasing their latest monthly market reports, which will give their latest views on the supply/demand outlook for the remainder of this year and next year.
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