Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
Oil prices closed at a 4 1/2 -month high as the impact of OPEC production cuts and an increase in air travel led to a huge crude oil draw and products as well. The market might have gone even higher if it were not for the fact that gasoline demand week over week disappointed, and OPEC signaled an increase in oil output. Yet regardless of this, the oil market comeback is in good shape, and we will continue to see tightening supplies. A rebound in China’s growth is raising hopes of more global oil demand as its economy, as measured by GDP grew by 3.2% and already has seen its oil demand reach pre-corona-virus levels.
Russian Energy Minister Alexander Novak said that the expected easing of oil output cuts by the OPEC+ group from August to 7.7 million barrels per day is justifiable and in line with the market trends. And he is right. The supply side of the market is tightening, and the market is going to need more oil.
The Energy Information Administration (EIA) reported that crude oil imports averaged about 6.4 million barrels per day, 10.2% less than the same four-week period last year. A significant drop in the Gulf Coast supplies suggests that those Saudi Oil tankers are finally emptied out. That led to a 7.56-million-barrel drop in crude supply and was enough to offset the fears of more OPEC oil. Gulf Coast crude stocks fell by 7.9 million barrels.
U.S. refinery runs also came in better than expected suggest demand optimism from the refinery sector. The EIA said that U.S. crude oil refinery inputs averaged 14.3 million barrels per day during the week ending July 10, 2020, which was 38,000 barrels per day less than the previous week’s average. Refineries operated at 78.1% of their operable capacity last week. Gasoline production increased last week, averaging 9.1 million barrels per day. Distillate fuel production increased last week, averaging 4.9 million barrels per day.
Trades were a little disappointed that Gasoline demand dipped a bit but rallied because supply still fell. Gasoline inventories decreased by 3.1 million barrels last week and are about 7% above the five-year average for this time of year. Gasoline demand, down 13% on the week to 8.65 million barrels a day in a post-holiday decline.
Distillate fuel inventories also fell by 453,000 barrels last week and are about 26% above the five-year average for this time of year and the drop was led by a come in the soft spot of the sector, Jet fuel. Jet fuel demand surged 37% to 1.27 million b/d, the strongest since March. While we still or down 30% on jet fuel demand from year-ago levels the uptick a suggests a bottoming out as airlines start to put more planes in the sky
Gasoline demand, in contrast, was down more than 13% on the week at 8.65 million b/d, however, normal post-holiday declines in driving meant that gasoline demand came in just 6% behind year-ago levels, in from 10% the week prior.
Today we have the August crude expiration. We know oil bears are frustrated, and today is their last chance to save their puts and bearish option strategies. It might be tough with all of the issues that Iran has been having an increasing geopolitical risk.
The Wall Street Journal reports that with U.S. backing, the U.N. confronts Tehran over nuclear work. The Journal in an exclusive says the U.N. atomic agency has taken tougher line on Iran under new chief, Rafael Grossi. Some fear it could break 2015 nuclear deal.
The Journal Rafael Grossi, chief of the International Atomic Energy Agency” on Dec. 3 with strong U.S. backing, Mr. Grossi has steered the agency into a deepening confrontation with Iran over enforcement of nuclear-weapons control rules. Now Mr. Grossi is assessing when to up the ante. In an interview with The Wall Street Journal at IAEA headquarters, he said the agency won’t retreat, warning that if Tehran doesn’t grant access by the end of this month, it “will be bad.” “I keep insisting on the absolute necessity for us to resolve this issue very soon,” he said. This “isn’t going to go away.” In January, Mr. Grossi accelerated a probe into undeclared nuclear material discovered in Iran last year. The agency demanded access to two sites and speedy answers about activities potentially connected to nuclear-weapons work. Iran has refused to comply. U.S. officials have urged him to update IAEA members soon on Tehran’s cooperation, an ostensibly procedural step that could set dominoes falling and further threaten the embattled 2015 Iran nuclear deal. It would allow Washington to try to take Iran to the U.N. Security Council over its IAEA stonewalling—a move likely to spark opposition from Russia and China and fury from Tehran according to the Journal.
Fox News Reported that Seven boats at a shipyard in Iran caught fire Wednesday, the latest in a slew of mysterious incidents that have led to speculation that an international foe is perpetrating sneak attacks in an attempt to sabotage the embattled regime. The blaze started in the port of Bushehr, in southern Iran, but was contained and no casualties were reported, the head of the local crisis management organization told Irna news agency. Iran’s only nuclear power plant is located in Bushehr province. The cause of the fire remains unclear, the report said. Over the last several weeks, explosions at a nuclear enrichment complex, a missile production factory, and a gas pipeline in an apartment building in Tehran have raised eyebrows, as some analysts have speculated that Israel could be a likely aggressor.
Stay tuned! Nat gas report today! We are looking for a 50 bcf increase.
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