An Expected Rise in Demand as the Summer Travel Season Increases with the Independence Day Holiday This Week

Recap:  On Tuesday, the oil market ended the session lower after the market extended its previous gains to two-month highs early in the session. The market was well supported by an expected rise in demand as the summer travel season increases with the Independence Day holiday this week. The American Automobile Association forecast travel during the holiday period will increase 5.2% on the year, with car travel up 4.8% on the year. Also, while Hurricane Beryl, which strengthened into a category 5 storm on Monday is not expected to affect operations in the Gulf of Mexico immediately, the market was closely watching the forecasts. The market continued to extend its recent gains and posted a high of $84.38 by mid-morning. However, it erased its sharp gains and sold off to a low of $82.72 on profit-taking as fears of supply disruptions caused by Hurricane Beryl dissipated. The August WTI contract settled down 57 cents at $82.81 and the September Brent contract settled down 36 cents at $86.24. The product market settled in mixed territory, with the heating oil market settling up 1.5 cents at $2.6297 and the RB market settling down 49 points at $2.5734.

Technical Analysis:  While the market has remained in overbought territory, it is seen remaining supported as the weekly petroleum stocks reports are expected to show draws across the board and demand increases ahead of the Fourth of July holiday on Thursday. Any retracement of its recent gains will remain limited by continuing concerns over the geopolitical tensions in the Middle East. Meanwhile, the latest forecast for Hurricane Beryl is calling for the Category 5 hurricane to weaken into a tropical storm by the time it enters the Gulf of Mexico late this week and is unlikely to shut down any major amounts of offshore oil production. The oil market is seen finding resistance at its high of $84.38, $85.00 and $85.27. However, support is seen at its low of $82.72, $81.38, $80.97, $80.51, $80.18 and $79.82.

Fundamental News:  The U.S. Department of Energy said it has completed awarding contracts for the sale of 1 million barrels of gasoline from the Northeast Gasoline Supply Reserve to lower prices ahead of the Fourth of July holiday. The Energy Department said the barrels were sold at an average price of $2.34/gallon to five companies, with BP buying 500,000 barrels, Vitol buying 200,000 barrels and Freeport Commodities, Irving Oil and George E. Warren purchasing about 100,000 barrels each.

Iran’s Oil Minister, Javad Owji, said Iran is selling crude oil to 17 countries, including some countries in Europe, indicating some countries may not be honoring U.S. sanctions. He said he could not provide additional detail regarding the amounts sold or the identity of buyers due to the sensitivity of the subject.

On Monday night, Hurricane Beryl strengthened into a “potentially catastrophic” category 5 storm as it moved across the eastern Caribbean. The National Hurricane Center said Hurricane Beryl, packing winds of up to 155 mph, was about 485 miles east-southeast of Kingston, Jamaica. The storm struck the Caribbean region earlier in the day as the earliest Category 4 storm on record. Meanwhile, a private weather forecaster said the environmental conditions will gradually become less favorable for Beryl to maintain its extremely powerful hurricane status by late Tuesday. The forecaster said it is likely that Beryl will begin weakening and this weakening will continue when the eye of the hurricane passes just south of Jamaica on Wednesday night.  The hurricane will still be close enough to produce hurricane conditions across Jamaica during Wednesday. Beyond this, there continues to be quite a bit of uncertainty as to how much Beryl will have weakened by the time it reaches the southern Yucatan Peninsula on Thursday night and model consensus seems to suggest that Beryl may be a tropical storm when it comes ashore on the eastern Yucatan Peninsula on Friday. Environmental conditions are not expected to be favorable for major strengthening in the Gulf of Mexico. However, a tropical storm impact somewhere between Tampico, Mexico and Corpus Christi, Texas is a possibility around Sunday or Monday. 

Early Market Call – as of 8:40 AM EDT

WTI – August $82.92, up 11 cents

RBOB – August $2.5607, down 1.27 cents

HO – August $2.6072, down 2.25 cents

This market update is provided for information purposes only and is not intended as advice on any transaction nor is it a solicitation to buy or sell commodities. Sprague makes no representations or warranties with respect to the contents of such news, including, without limitation, its accuracy and completeness, and Sprague shall not be responsible for the consequence of reliance upon any opinions, statements, projections and analyses presented herein or for any omission or error in fact. The views expressed in this material are through the period as of the date of this report and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance or results and actual results or developments may differ materially from those projected. The whole or any part of this work may not be reproduced, copied, or transmitted or any of its contents disclosed to third parties without Sprague’s express written consent.