It’s like the old days. China is driving global oil demand, and that is supporting prices. China not only imported a record amount of oil last month, economic data coming out of China suggests that demand should continue.

The August reading of China’s services industry hit its most substantial level since early 2018, while the expansion in manufacturing activity beat market expectations. Chinese manufacturing activity in August is expanding at the fastest pace in nearly a decade, with the Caixin/Markit manufacturing Purchasing Managers’ Index coming in at 53.1 for the month. The purchasing managers’ index (PMI) for services rose to 55.2 from 54.2 in July, according to the National Bureau of Statistics.

U.S. production of oil and gas ticked up, but OPEC laggard production levels should come down. Reuters reported that U.S. oil output rose 420,000 barrels per day in June to 10.436 million barrels a day, the U.S. Energy Information Administration said in a monthly report on Monday. Production remained far below April levels of 11.99 million bpd. Output in June rose in top oil-producing state Texas by 227,000 bpd and also rose in North Dakota while dropping 49,000 bpd in the offshore Gulf of Mexico, the report said. U.S. oil output had fallen sharply in the previous month as producers had scaled back as oil prices sank and demand fell due to the coronavirus pandemic and global oversupply.

Monthly gross natural gas production in the U.S. lower 48 states, meanwhile, rose 1.6 billion cubic feet per day (bcfd) in June to 99.1 bcfd, rising from its May level, which was the lowest monthly average since October 2018, according to the EIA 914 report. In Texas, the most significant gas-producing state, output rose by 0.9 bcfd. A lot of the gas in Texas is associate gas from oil production. In Pennsylvania, the second-biggest gas-producing state, output rose 0.3 bcfd to 18.96 bcfd in June.

International Oil Daily Reports from Energy Intelligence said that, “several Opec-plus members had submitted plans to make additional “catch-up” cuts in their oil output to compensate for their cheating during the first few months of the alliance’s historic production cuts. The cheaters like Iraq, Kazakhstan, Equatorial Guinea, and Brunei have put in plans with the Opec Secretariat, according to sources of “Energy Intelligence.” Iraq reportedly is going to cut output by 400,000 barrels per day under quota in August and September, and Kazakhstan will cut of 94,500 b/d over the same two-month period. They also reported that Abu Dhabi National Oil Co. told its customers on Monday that it will cut its volume allocations to term customers by 30% in October, compared with cuts of 5% relative to nominations in the preceding months.

The longer crude stays in this range, the bigger the potential move when it breaks out. The API may not be decisive because of Hurricane Laura’s impact.
Thanks,
Phil Flynn

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