Perhaps the best sign that we’re getting close to an OPEC+ meeting is the sudden leaking of unsourced stories that can suddenly move markets.
Yesterday the oil market was battling back from its peace dividend crash sell-off after the achievement by US bombers that neutralized the Iranian nuclear sites. The market was rallying back after a very bullish report from the Energy Information Administration that showed huge drawdowns in both gasoline and distillate inventories and the fact that US crude oil inventories are at a 10-year seasonal low.
The reported stunning numbers with U.S. commercial crude oil inventories falling by 5.8 million barrels from the previous week putting crude supply 11% below the five-year average for this time of year and a ten-year low. Gasoline inventories also dropped by 2.1 million barrels from last week and are about 3% below the five-year average for this time of year. Distillate fuel inventories plummeted by 4.1 million barrels last week and are about 20% below the five-year average for this time of year. Yet despite this very bullish data oil was having a hard time rallying regardless.
Even with the very bullish data because of the many margin calls that were created by the huge reversal in oil and the removal of Iranian war premium, made buyers cautious because of the crazy volatility. But then later in the session roughly 1/2 an hour before the official settlement time a report that said that Russia is open to new production hikes caught the market by surprise. Recently, Russia has been hesitant to discuss increasing oil production due to sanctions that complicate sales and require offering significant discounts. However, has OPEC truly had a change of heart, or is this just another tactic to create uncertainty among oil buyers?
So if you read the actual headline, it said that Russia is open to a new high. If OPEC decides it’s needed, and they cite a so-called person familiar with the matter and familiar with Russia’s position, now who this person may be is a mystery. In other words, this unnamed person is saying that Russia may consider going along with the flow of the other OPEC members. This person who leaked this story spoke on the condition of anonymity because sadly the deliberations are not public. Russia is open to an open height at the July 6 meeting. Clear evidence of Russian collusion or maybe clear evidence of “fake news.”
The oil market pullback has reduced crack spreads for both diesel and gasoline. Despite this, we still favor long positions on crack spreads during dips, as we expect high demand with stable pump prices. However, prices remain weak despite record high temperatures.
Fox Weather is reporting that even in Paris they are getting crazy heat. Fox Weather says Paris slammed by 70 mph gusts as severe thunderstorms sweep in amid 99-degree scorcher.
Despite the heat wave, there’s concern that the increase in natural gas storage is keeping prices down. Natural gas prices also fell due to reduced risk premiums amid the Iran-Israel ceasefire, with global benchmarks declining. We’ll monitor Fox Weather to see if the heat dome persists, which will be crucial for natural gas prices. If the heat persists, prices may rise. If it cools, prices may struggle to rally in the short term. However, the long-term outlook for natural gas remains bullish.
Reuters is reporting that, “U.S. energy firms likely added an above-normal 88 billion cubic feet of natural gas into storage last week, according to the average estimate of analysts in a Reuters poll on Wednesday. That compares with an injection of 59 bcf during the same week a year ago and a five-year (2020-2024) average increase of 79 bcf for this time of year. In the prior week ended June 13, utilities added 95 bcf of gas into storage.
If correct, the forecast for the week ending June 20 would increase stockpiles to 2.890 trillion cubic feet, about 6.6% below the same week a year ago and around 6.3% above the five-year average for the week.
The U.S. Energy Information Administration is scheduled to release its weekly storage report at 10:30 a.m. EDT on Thursday. There were 80 total degree days (TDD) last week, compared with the 30-year normal of 71 TDDs for the period, data from financial firm LSEG showed. Total degree days measure the number of degrees a day’s average temperature is above or below 65 degrees Fahrenheit (18 degrees Celsius) to estimate demand to cool or heat homes and businesses. Reuters polled 14 analysts, whose estimates ranged from additions of 77 bcf to 99 bcf, with a median increase of 88 bcf.
Early estimates for the week ending June 27 ranged from additions of 42 bcf to 88 bcf, with an average increase of 51 bcf. That compares with an injection of 35 bcf during the same week last year and a five-year average increase of 61 bcf.