On July 3, the API (American Petroleum Institute) released its oil inventory report after the crude oil futures settlement for that day on NYMEX. The API reported that US crude oil inventories fell by 4.5 MMbbls (million barrels) to 416.9 MMbbls on June 22–29. A Bloomberg survey estimates that US oil inventories could have declined by 5 MMbbls during the same period. Genscape estimates that Cushing crude oil inventories could have declined by 2 MMbbls on June 22–29. The EIA (U.S. Energy Information Administration) is scheduled to release its oil inventory report on July 5.August WTI crude oil prices hit an intraday high of $75.27 per barrel on July 3—the highest level since November 2014. A drop in the US Dollar Index, supply outages in Libya and Canada, sanctions on Iran, and the expectation of a decline in crude oil, gasoline, and distillate inventories supported crude oil prices. However, the rise in crude oil production from OPEC, Russia, and the US could pressure oil prices. Saudi Arabia is expected to pump up to 11 MMbpd (million barrels per day) of crude oil in July, which is up from 10.7 MMbpd in June—the highest level in its history if the projections are achieved. Active WTI crude oil futures rose ~0.3% on July 3. The Energy Select Sector SPDR ETF (XLE) rose ~0.63% the same day. The companies in XLE produce crude oil and natural gas and provide other energy-related services.
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The Tuesday tumult, comprised of the sudden $2+/bbl sell-off in WTI crude in a matter of minutes and an 8 percent downdraft in Micron shares, sets up opportunities Thursday as the thin and whippy market may have led to a touch extra choppiness. The oil market Wednesday had a chance to process the coincidentally timely reports from Genscape and the Saudi press, which alluded to bearish supply indications. Energy stocks had outperformed Tuesday as WTI hovered above $75 (highest since Nov. 2014), and will look to DOE figures Thursday to confirm key Cushing stockpiles for any follow-through above that level. The apparent surprise China court ruling banning sales of certain Micron Technology chips to China reverberated far and wide, dragging the Nasdaq lower right into the close. Details are scant, but the collateral damage was not. European peers underperformed Wednesday on fears this could escalate worldwide trade tensions. Also caught up in mix were some of Micron’s key suppliers, which, according to data compiled by Bloomberg, may include Lam Research, Applied Materials and KLA-Tencor, to name a few. With approximately 50 percent of Micron’s sales last year coming from China, it may be fair to say shares in some of those suppliers may see some additional volatility as trade gets under way. NXP Semiconductors, a frequent trade tension proxy given its pending deal with Qualcomm, could see some read-through. Many large cap technology names are in the green in the pre-market while Micron looks set to open lower.
Natural gas prices plunged on Monday as investors reacted to reports of increased production and forecasts of cooler temperatures starting at mid-July. As we mentioned about two weeks ago, the price action strongly suggested that we were no longer in a weather market because a lingering heat dome was not in the picture and that rising production would eventually overcome normal demand. Essentially, prices fell and could continue to retreat because data showing record-level production combined with expectations for more seasonal weather later in the month offset the large storage deficits and bullish near-term forecasts. According to NatGasWeather, “production is just too strong for the markets to ignore, aided by reports of weekend production at or exceeding all-time highs, thereby weighing more heavily on prices than hefty deficits and hotter than normal temperatures.” Genscape, Inc. data showed that lower 48 production appears to have cracked the 80 Bcf/d mark. Following pipeline reported revisions to nominations data, its production team showed volumes hit around 80.05 Bcf/d on June 28 and June 29.
Turning to the spot market, deals for delivery over the July Fourth holiday and Thursday saw discounts along the East Coast, where hot temperatures had driven premiums earlier in the week. Genscape Inc. on Monday said it estimated about 16 Bcf of total Lower 48 demand destruction for the week due to the holiday, and forecasters have been calling for temperatures in the Mid-Atlantic and Northeast region to cool off to slightly below-normal levels by the weekend. “New York City to Chicago will remain under a strong dome of high pressure the next several days with highs of 90s to near 100 degrees for strong demand, aided by high humidities pushing the Heat Index to dangerous levels,” NatGasWeather told clients Tuesday. “Demand would be more impressive if not for office and business closures due to the Fourth of July holiday. “The core of the hot ridge is still on track to shift over the western and central U.S. late in the week, allowing a weather system to sweep across the East Friday through Sunday with highs cooling into the 70s and 80s,” the forecaster said. “The hot ridge is expected to re-strengthen across the east-central U.S. next week to dominate most of the country for another surge in demand, although likely to be followed by a second modest shot of cooling into the Northeast around July 14-15.”
The heat wave that has roasted the U.S. East Coast may be slowing down U.S. stock trading and foiling July 4 road trips. But it’s the best friend of power market bulls. Electricity demand across the eastern power market run by PJM Interconnection LLC reached 144,557 megawatts Tuesday afternoon -- the highest since Aug. 12, 2016 -- as people blasted their air conditioners and fans to keep cool. In New York, which was suffering through a fourth consecutive day of temperatures above 90 degrees Fahrenheit (32 degrees Celsius), power use surged to the highest levels since 2013.The spike in demand sent wholesale electricity prices at PJM’s Western hub surging 19 percent to $103.51 a megawatt-hour in the hour ended 1 p.m. local time Tuesday. That’s the highest average for that time of day since March 12, according to Genscape Inc. data compiled by Bloomberg. PJM issued a hot-weather alert through late Tuesday. Average prices in New York City hit the highest since April for the hour ended 11 a.m.
Benchmark northwest European gasoline refining margins edged higher on Tuesday on the back of lower crude while low export demand continued to weigh. * Cepsa’s 190,000 barrel per day Huelva refinery shut down a crude distillation unit and vacuum distillation unit on Tuesday, according to Genscape.
Crude oil fell from its highest level in more than three years in New York on prospects for accelerating supply and as traders curbed bullish bets before tomorrow’s public holiday. Futures in New York jumped as much as 1.8 percent, then quickly declined. Oil has been buffeted lately as U.S. President Donald Trump -- facing high retail gasoline prices ahead of midterm elections -- has been pushing Saudi Arabia to boost output. And today, a report from data-provider Genscape Inc. is said to show Texas Gulf Coast crude stockpiles rose by about 431,000 barrels last week, reversing previous declines and undercutting prices. The decline may also be tied to “a bout of long liquidation in front of the holiday,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. And “there is always risk” Trump will release oil from the U.S. Strategic Petroleum Reserve to cap prices, he said.
New York City just experienced the highest midday electricity prices in two months after residents put air conditioners and fans on full blast to cope with hot weather. Spot power climbed 38 percent to $72.28 a megawatt-hour between 11 a.m. and noon local time, and 87 percent higher than Friday. Today’s price was the highest average for that time of day since April 27, according to Genscape Inc. data compiled by Bloomberg. New York City’s load during that time was 10,154 megawatts, 18 percent higher than Sunday and the most since July 20, 2017. Temperatures peaked at 95 degrees Fahrenheit (35 Celsius) at midday, just below the 100-degree record set in 1966, according to AccuWeather.
Surging natural gas supply continues to act as a yoke on futures prices; data showing record-level production, combined with expectations for more seasonal weather later in the month, helped send futures lower Monday despite large storage deficits and bullish near-term forecasts. In the spot market, hot temperatures along the Interstate 95 (I-95) corridor lifted Northeast and Mid-Atlantic points as restored pipeline capacity out of the Permian Basin helped boost prices in West Texas; the NGI National Spot Gas Average finished 7 cents higher at $2.76/MMBtu. The August futures contract settled 6.2 cents lower Monday at $2.862, not far off the $2.852 intraday low after trading as high as $2.927. September settled at $2.844, down 5.7 cents. The drop to start the week suggests “production is just too strong for the markets to ignore, aided by reports of weekend production at or exceeding all-time highs, thereby weighing more heavily on prices than hefty deficits and hotter than normal temperatures,” NatGasWeather said. Prices now are down 15 cents since last Thursday when the Energy Information Administration issued “a bearish revision” to the prior week’s storage data, while “the markets appear to be stating record production is back in the driver’s seat and hotter trends might be needed for bulls to regain momentum.” Lower 48 production appears to have cracked the 80 Bcf/d mark, according to recent data from Genscape Inc. Following pipeline reported revisions to nominations data, its production team showed volumes hit around 80.05 Bcf/d on June 28 and 29.
The operational capacity at the “GUADLUP” constraint point has consequently been increased to 1,154,000 Dth/d (roughly 1,126 MMcf/d), according to Genscape Inc. As of evening cycle for the July 2 gas day, scheduled capacity through the constraint was at around 952 MMcf/d. “This rebound in scheduled flows is right in line with scheduled capacities seen prior to the force majeure declaration; only 11 MMcf/d lower than the seven-day average leading up to the restriction, Genscape natural gas analyst Joe Bernardi said. Meanwhile, Lower 48 production appears to have cracked the long sought after 80 Bcf/d mark, Genscape said. Following pipeline reported revisions to previous days’ nominations data, its production team showed volumes hit around 80.05 Bcf/d on June 28 and 29. With late-season maintenance events wrapping up, June’s production average is within 0.15 Bcf/d of Genscape’s original forecast. The Energy Information Administration (EIA) has projected that production would grow another 1.1 Bcf/d in July, which could add further downward pressure to regional prices, especially if hot weather does not materialize.