Data showed an unexpected 2.1 million barrel build in U.S. crude oil inventories

Market Insights
Heating Oil
July 22, 2021

Recap: Oil futures jumped on Wednesday despite data showing an unexpected 2.1 million barrel build in U.S. crude oil inventories, which broke an eight week streak of declines. The driver behind the increase in stockpiles was a surge in imports, which reached their highest in a year. While the report was bearish, U.S. fuel demand, measured by product supplied, rose last week, and the overall four-week average of 20.6 million bpd was on par with consumption two years ago, prior to the pandemic. Weakness in the dollar was also a supporting factor.  September WTI gained $3.10 to settle at $70.30 a barrel on the first day of the September contract trading at the front of the curve, while September Brent rose by $2.88 to settle at $72.23/barrel. As for refined products, August RBOB jumped 8.52 cents to settle at $2.2167 per gallon, a 10.63 cent, or 5.04% gain over the last two sessions. August ULSD increased by 7.43 cents to $2.0870 per gallon.

Technical AnalysisWith traders appearing to have found value on Monday’s huge drop in crude oil prices, oil markets rallied significantly on Wednesday, recapturing the break down level made on the selloff. September WTI bounced off of a short term ascending trend line to climb back above $70 and the 50-day moving average. Although prices aggressively bounced back, it is difficult to think that this market can make its way up toward the July highs. OPEC and its allies have agreed to increase production, while the number of COVID-19 Delta variant cases has been on the rise, prompting economists to factor in lower global economic growth. Given this scenario, we could see traders stepping in to sell the rally, with bottom pickers waiting down below. This will lead to a bit of sideways trading until this market figures out a definitive direction. 

Fundamental News: JPMorgan maintained that demand will normalize slightly below 2019 levels through the end of the year.  It stated that unless the Covid situation “worsens significantly from here” it continues to forecast global oil demand normalizing under pre-pandemic levels through the end of the year and maintains Brent prices averaging $76/barrel in the third quarter and $80/barrel in the fourth quarter.  Its year-end Brent target is maintained at $83/barrel.  It stated that global mobility will stay “a few percentage points” below 2019 levels and global jet fuel demand will not break above 80% of 2019 levels until after the winter. 

ESAI Energy said that by mid-2022, about three fourths of global oil demand will come from countries where immunization from Covid-19 has reached 60%.  A full recovery of oil demand is not likely until 2023, with some countries unlikely to reach 60% vaccination rate.  

IIR Energy reported that U.S. oil refiners are expected to shut in 663,000 bpd of capacity in the week ending July 23rd, cutting available refining capacity by 18,000 bpd from the previous week. Offline capacity is expected to fall to 384,000 bpd in the week ending July 30th.

Euroilstock reported that European refiners produced 9.02 million bpd of oil products in June, up 0.95 on the month and by 6.2% on the year.  European refiners produced 2.063 million bpd of gasoline, up 2.8% on the month and 9% on the year, while it produced 4.513 million bpd of middle distillates, up 2.1% on the month and 4.4% on the year.  Euroilstock also reported that European refiners produced 865,000 bpd of fuel oil, down 4.3% on the month but increased by 17.5% on the year and 836,000 bpd of naphtha, down 1.9% on the month but increased by 7% on the year.  European refinery crude intake fell by 0.9% on the month but increased by 8.3% on the year to 8.604 million bpd.

Colonial Pipeline Co is allocating space for Cycle 42 shipments on Line 20, which carries distillates from Atlanta, Georgia to Nashville, Tennessee. 

Early Market Call - as of 8:15 AM EDT

WTI - Sep $70.74, up 45 cents

RBOB - Aug $2.2304, up 1.36 cents

HO - Aug $2.0984, up 1.09 cents

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