US inventory numbers

The Commodities Feed: Supply risks vs demand concerns Commodity markets largely shrugged off developments in Russia over the weekend, with the focus now back on China demand concerns and the US Federal Reserve.   Energy – Rangebound crude Energy markets largely shrugged off events over the weekend in Russia. Oil opened strongly yesterday, but gave back a lot of these gains as the day progressed. As a result, ICE Brent settled just 0.45% higher on the day. The more hawkish tone from the US Fed appears to be capping oil prices and the broader commodities complex, while there remain broader concerns over China’s economic recovery. Up until now, oil demand indicators for China have been good, with stronger crude oil imports and higher apparent domestic demand. The concern is whether this can continue as there are clearly still some weak spots within the Chinese economy – specifically with industrial production and the property sector. For the oil market, there is little on the calendar for today. ICE Brent August options expire today, which will be followed by the August futures expiring on Friday. The latest open interest data (which is up until Friday) shows that there is still open interest of more than 17k lots at the $75 strike for August call options. Meanwhile, we will also get US inventory numbers from the American Petroleum Institute (API) later in the day. The European natural gas market had a volatile trading session yesterday with TTF trading in a range of EUR5.40/MWh over the day. Obviously, there would have been concerns over the remaining Russian pipeline flows to Europe following developments in Russia over the weekend. However, fundamentals for the European gas market are still bearish in the short term. EU gas storage continues to fill up and is now more than 76% full, well above the 57% seen at the same stage last year and also higher than the five-year average of 60%. In the absence of any significant supply shocks, EU gas storage will hit the European Commission’s target of 90% full well before 1 November. This suggests that later in the summer we could see further pressure on prices and a deeper contango along the forward curve – there is already an almost €20/MWh contango between the August 2023 and December 2023 TTF contract.  

The Commodities Feed: Middle distillates firm up US economic data proved supportive for crude prices yesterday by signalling that the Federal Reserve could now be nearing the end of its rate hiking cycle. Today's calendar is fairly quiet, with just the usual EIA inventory numbers to note.   Energy – $80/bbl remains in play for Brent Bad news still appears to be good news when it comes to US economic data. US retail sales for June came in below market expectations, whilst industrial production came in much weaker than anticipated. While this will do little to change expectations for a Federal Reserve rate hike next week, it does suggest that it could be the last of the hiking we see from the central bank, particularly following the softer than expected CPI release last week. Oil has reacted positively to the expectation that we are approaching the end of the hiking cycle. ICE Brent settled more than 1.4% higher yesterday, leaving the market in striking distance of the US$80/bbl level. Given the tightening that we expect in the oil market as we move through the second half of this year, we believe it is only a matter of time before Brent moves above US$80/bbl. How convincing this move will be will really depend on whether we see a big shift in speculative sentiment. Whilst we have seen an increase in speculative buying in recent weeks, historically it is still fairly modest, particularly when you consider the tightening that is expected in the physical market US inventory numbers released overnight from the API show that there were draws across the board over the last week. Crude oil inventories fell by 797Mbbls, which was less than the roughly 2.5MMbbls decline the market was expecting. Crude stocks at Cushing fell by 3MMbbls, while gasoline and distillate inventories declined by 2.8MMbbls and 100Mbbls respectively. Overall, the numbers were fairly neutral. The more widely followed Energy Information Administration (EIA) report will be released later today. The middle distillate market remains well supported with the prompt ICE gasoil time spread trading at more than a US$4/t backwardation, whilst the prompt ICE gasoil crack has strengthened to more than US$22/bbl. There has been revived speculative interest in middle distillates recently, with speculators buying almost 23k lots of ICE gasoil over the last reporting week to leave them with a net long just shy of 33k lots. This buying has been driven by a combination of fresh longs as well as short covering. Since early May, speculators have bought more than 65k lots in ICE gasoil. Clearly, sentiment in the market has shifted quite drastically, and this is not too surprising when looking at the drawdown in ARA gasoil inventories in recent weeks. Insights Global data shows that gasoil inventories in ARA have fallen by 577kt since mid-May, leaving stocks at 1.93mt- 16% below the 5-year average. The second batch of Chinese trade data for June was released yesterday, which showed strong exports for gasoline and jet fuel with refiners having increased run rates (up 11% year-on-year). Gasoline exports in June increased 30.7% YoY to 950kt, which takes year-to-date exports to 6.17mt, up 10.9% YoY. Meanwhile, jet fuel exports grew by more than 109% YoY to 1.08mt in June, leaving year-to-date exports at 6.74mt, an increase of 57.3% YoY. Diesel exports over the month were weaker, falling 12.4% YoY to 290kt. However, year-to-date diesel exports are still very strong, up more than 263% YoY to a total of 7.49mt. The latest China trade data also shows that LNG imports in June totalled 5.96mt, up 24% YoY – and this is after imports in May grew 30% YoY. Stronger imports in recent months have made up for the weaker flows seen earlier in the year. As a result, cumulative LNG imports over the first six months of the year totalled 33.62mt, up a little more than 7% YoY. This still leaves us below the roughly 10% import demand growth we were expecting for the year as a whole. China is still very quiet in the spot market, and it appears that term contract volumes are adequate to meet domestic demand. We would likely need to see a recovery in Chinese industrial production before we see stronger LNG demand, as industrial demand makes up the bulk of Chinese natural gas demand.

The Commodities Feed: Growing oil deficit The oil market rallied yesterday on the back of a constructive OPEC report. Today, all attention will be on the IEA’s monthly oil report and whether the agency shares the same view as OPEC.   Energy - OPEC sees large deficit The oil market continued its move higher yesterday. ICE Brent rallied by almost 1.6% taking it above US$92/bbl and trading to its highest level since November last year. The catalyst for the move was a bullish monthly report from OPEC. The group’s numbers suggest that the oil market could see a deficit of more than 3MMbbls/d over the fourth quarter of this year. These numbers will cause some to question OPEC’s claims that their main objective is to keep the market balanced as their own numbers clearly do not show this. However, the actual balance could end up looking very different, given that there is still plenty of uncertainty over demand. In addition, we have seen Iranian and Venezuelan output edging higher this year and there is the potential for at least Iranian supply to continue rising despite US sanctions. Higher prices are likely to lead to increased political pressure, particularly given that there are elections in a number of countries next year, including key oil consumers, the US and India. It may be difficult for the US government to allow further releases from its strategic petroleum reserves (SPR), but we are likely to see the government taking a pause in refilling the SPR after the large releases seen last year. In addition to this, the US is likely to be less strict in enforcing sanctions against Iran. Already, in recent months this appears to be the case. The EIA released its latest Short-Term Energy Outlook yesterday in which they slightly revised higher their US crude oil production estimates. The EIA expects US output to grow by around 880Mbbls/d YoY to a record 12.78MMbbls/d this year, while for 2024, supply is expected to grow by a more modest 370Mbbls/d to 13.16MMbbls/d. However, given the slowdown that we have seen in drilling activity for much of this year, it might be a challenge to hit these estimates. Overnight, the API released US inventory numbers, which were more bearish. US crude oil inventories increased by 1.17MMbbls over the week, whilst gasoline and distillate stocks increased by 4.2MMbbls and 2.59MMbbls respectively. Today, the IEA will release its latest monthly oil market report. The market will be eager to see their latest forecasts, particularly after OPEC's numbers. This release will be followed by the EIA’s usual US inventory numbers.

The Commodities Feed: Oil resists risk-off move The oil market managed to settle higher yesterday, going against the broader risk-off move seen in markets. The data calendar is fairly quiet today with just the usual EIA inventory numbers out later.   Energy - Gasoil cracks weaken Despite the heavy sell-off in equities yesterday, along with further strength in the USD, ICE Brent managed to settle a little more than 0.7% higher on the day. The price action suggests that tightening fundamentals are largely driving the market at the moment. Although clearly, external influences will be providing some headwinds to the oil market. Overnight the API released its latest US inventory numbers. Overall the report was largely neutral with crude oil inventories rising by 1.59MMbbls over the week, while gasoline inventories fell by just 70Mbbls. More supportive numbers from the release were the 1.7MMbbls decline in distillate fuel oil stocks and the 828Mbbls decline in Cushing crude oil inventories. The decline in inventories at the WTI delivery hub continues to see the prompt WTI spread trade into deep backwardation and it is currently trading at over US$1.60/bbl. The more widely followed EIA inventory report will be released later today. Gasoil cracks have continued to come under pressure this week despite the Russian export ban on diesel and gasoline. The November ICE gasoil crack is holding just above US$30/bbl. The lack of sustained strength in the gasoil market following the announcement appears to reflect expectations that the Russian ban will not remain in place for very long given domestic storage constraints. In recent days we have already seen the Russian government tweaking the ban by allowing the export of low-quality diesel and bunker fuel.