What Fueled Oil Price Downtrend?
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In this week’s edition of oil and gas industry hits and misses, Rigzone’s regular market watchers focus on the factors that fueled the oil price downtrend, OPEC+’s latest moves, driving season trends and more. Read on for more detail.
Rigzone: What were some market expectations that actually occurred during the past week – and which expectations did not?
Tom Seng, Director – School of Energy Economics, Policy and Commerce, University of Tulsa’s Collins College of Business: WTI and Brent crude both fell this week to levels not seen since February before Russia invaded Ukraine. The U.S. grade fell below $90 per barrel to just over $88 per barrel while Brent broke the $94 per barrel mark. Global economic concerns, actual lower demand, and a bearish inventory report fueled the downtrend. The only bullish signal was the announcement by the OPEC+ group of a smaller than usual planned output increase for September.
U.S. economic reports this week indicated a slowdown in factory growth while construction spending fell in June. This comes on the heels of last week’s GDP report that showed the economy has contracted for two consecutive quarters. Further negative economic news came out of China and Japan in the form of weak factory data. This week’s EIA Weekly Petroleum Status Report indicated that inventories of commercial crude increased 4.5 million barrels to 426.6 million but decreased to seven percent below normal for this time of year. The API reported that inventories rose by 2.2 million barrels while the WSJ survey predicted a loss of 1.7 million barrels. Refinery utilization fell back slightly from 92.2 percent to 91 percent accounting for some of the lost demand. Total motor gasoline inventories increased by 0.16 million barrels to 225 million barrels, climbing to three percent below average.
Distillates decreased 2.4 million barrels, widening the deficit with the five-year average to 25 percent below normal. Crude oil stocks at the key Cushing, Ok, hub saw an increase of 926,000 barrels to 24.5 million barrels, or 32 percent of capacity. Imports of crude were 7.3 million barrels vs 6.2 million barrels the prior week while exports were 3.5 million barrels per day, down from 4.5 million barrels per day the prior week. U.S. oil production held at 12.1 vs. 11.2 million barrels per day last year at this time. Volumes withdrawn from the Strategic Petroleum Reserve were 4.7 million barrels, dropping the total inventory to 470 million barrels, the lowest level in 37 years. The U.S. oil and gas rig count rose by nine last week to 767 vs 491 a year ago. The EIA also reported that gasoline demand last week was nine percent lower than a year ago at this time.
The OPEC+ group announced its intentions to increase output by 100,000 barrels per day next month, far less than expected and not the increase the Biden Administration had hoped for after the U.S. President’s recent visit to Riyadh. However, there has been a wide consensus in the market for months now that the members are not producing their targeted output levels anyhow. Two major U.S. oil and gas producers, ExxonMobil and Chevron, expect significant increases in production in the coming year from their respective Permian Basin holdings.
AAA reported that the national average price at the pump for gasoline is $4.19 per gallon this week vs $4.82 last month and $3.18 per gallon at this time last year. Meanwhile, September gasoline futures contracts broke the $3.00 mark to as low as $2.75 per gallon, also a level not seen since February. Despite the negative economic reports this week, all three major stock indexes look to settle higher on the week. Meanwhile, the U.S. dollar is lower week on week. That would normally indicate a retreat from the greenback into commodities such as crude oil but not this time.
We still need to keep an eye on the natural gas market as prices remain above $8.00 per MMBtu for September, a normally lower demand month. A bearish storage report had natural gas futures trading below $8.00 briefly. The EIA Weekly Natural Gas Storage Report showed an injection of 41 Bcf last week vs a 33 Bcf average and forecasts calling for 29 Bcf. Total stored gas now stands at 2.46 Tcf, -10 percent vs year ago levels and -12 percent from the five-year average. Additionally, the Freeport LNG facility, which has been shut-in due to an explosion, may be partially returning to service within a few weeks after reaching an agreement with PHMSA.
Hillary Stevenson, Director, Industry Relations at oil and gas data firm Validere: Inventories at the NYMEX Light Sweet Crude delivery point in Cushing, Ok, increased 926,000 barrels last week, pushing stocks above 24 million barrels for the first time since May. Rising stocks were anticipated with increased Canadian production. Normal flows resumed on TC Energy’s 590,000 bpd on July 23 following an electricity issue at a pumping station in South Dakota on July 17. Additionally, Enbridge Mainline apportionment is back for the first time in six months. Enbridge announced two percent apportionment for light and heavy lines in August. Post-maintenance-season production increases contributed to the capacity shortage.
Rigzone: What were some market surprises?
Seng: The OPEC+ meager output increase for September makes the ‘why bother’ category and could be a blatant snub of the Biden Administration’s request for more production. Australia may have to cut LNG exports in deference to its own domestic needs on its east coast. Regulators there believe exporters should target some volume for long-term domestic contracts.
Stevenson: Even amid the back to school rush, driving season may have ended prematurely with gasoline demand down to near pandemic levels last week, over one million barrels per day lower than the same week last year. Surprising to see gasoline demand falling while regular gasoline prices at the pump are down nearly $1 per gallon, decreasing for seven straight weeks.
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