Recap: Oil futures rose on Wednesday, as the focus has shifted from the spread of COVID-19 to tight supplies after the EIA reported a 4.1 million barrel drop in U.S. crude oil inventories. Oil has risen 45% this year, helped by demand recovery and supply curbs by the Organization of the Petroleum Exporting Countries and allies. OPEC+ agreed to increase supply by 400,000 barrels per day from August, unwinding more of last year's record supply cut, but this is seen as too low by some analysts given the rebound in demand expected this year. However, a rising number of coronavirus cases worldwide, despite vaccination programs, has limited the upside for oil and remains a concern. September WTI added 74 cents, or 1%, to settle at $72.39 a barrel, the highest front month settlement since July 14th. Brent for September delivery racked on 26 cents, or nearly 0.4%, to $74.74 a barrel, while the most actively traded October contract rose 3 cents, or 0.5%, to $73.87 a barrel. August RBOB slipped almost 0.3% to $2.31 a gallon, while August heating oil added 0.5% to $2.16 a gallon.
Technical Analysis: Oil prices have gone back and forth since bouncing off of the lows set last week, as it continues to search for direction. As the battle between the bulls and the bears continues, we would expect to see more of this back and forth trading. Worth noting is that the shorter term moving average has crossed above the longer term average, which typically means a higher move is coming. With that in mind, and the fact that WTI is approaching a downward trend line, we would hold off on buying this market until we get a clear break above this line, as this market is still quite sensitive to the spread of the coronavirus and its impact on demand. Should we get the break above the line, we could see this market make a run toward $75. To the downside, support is seen at $71.10 and below that at $70.
Fundamental News: The summer rebound in global fuel demand could start slowing down, as analysts expect gasoline consumption to taper off due to resurgent coronavirus cases and structural changes in commuting patterns. Gasoline demand in the United States has nearly recovered to 2019 levels. However, coronavirus cases worldwide have started to increase after falling in May and June, undermining the recovery. Gasoline demand in the United States and Europe is hitting a plateau, and those two regions account for about a third of global petroleum consumption, making them key to the rebound in oil and refining markets. The IEA expects global fuel demand to reach pre-pandemic levels by next year, but analysts say that could be pushed further out if coronavirus infections and the slow pace of vaccinations worldwide further entrenches structural changes in demand, including more telecommuting and less air travel.
The EIA said U.S. crude stockpiles in the week ending July 23rd fell to their lowest since January 2020 as imports and production declined. Crude inventories fell by 4.1 million barrels on the week to 435.6 million barrels. Stocks at the Cushing, Oklahoma fell by 1.27 million barrels to 35.4 million barrels, also their lowest since January 2020. Inventories in the Midwest overall fell to the lowest level since October 2018. Net U.S. crude imports fell last week by 616,000 bpd, while weekly field production fell by 200,000 bpd to 11.2 million bpd.
IIR Energy reported that U.S. oil refiners are expected to shut in 313,000 bpd of capacity in the week ending July 30th, increasing available refining capacity by 324,000.
Enterprise Products Partners LP said volume across its crude oil pipelines increased 5% in the second quarter on the back of a recovery in demand as the global economy continues to reopen following COVID-19 lockdowns. Enterprise said overall pipeline volume increased to 6.4 million bpd, slightly below the 6.7 million bpd in 2019. Total crude oil pipeline transportation volume increased to 2 million bpd in the second quarter from 1.9 million bpd in the first quarter and a year earlier.
Early Market Call - as of 8:15 AM EDT
WTI - Sep $72.75, up 35 cents
RBOB - Aug $2.3152, up 69 cents
HO - Aug $2.1662, up 1.10 cents
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