The Market Weighed Larger Than Expected Draws in Oil Stocks Against Bearish Economic Data from the U.S., the Euro Zone, and China

Recap:  The oil market ended the session higher on Wednesday as the market weighed larger than expected draws in oil stocks against bearish economic data from the U.S., the euro zone and China. The crude market traded sideways in overnight trading despite the larger than expected draw in crude stocks of over 9 million barrels in the week ending June 28th reported by the API. The market’s gains were limited by economic headwinds from China, which reported that its services activity expanded at the slowest pace in eight months and confidence fell a four-year low in June, while overall business growth across the euro zone also slowed sharply in June. The market later posted a trading range from $83.53 to $82.46 following the release of the EIA report. The market was initially well supported by the EIA report, which showed larger than expected draws across the board, with a draw in crude stocks of over 12 million barrels on the week. However, the market quickly erased its gains and sold off to its low as the market reassessed some bearish U.S. economic data, with U.S. factory orders unexpectedly falling in May and a measure of U.S. services sector activity falling to a four year low in June. The crude market later settled in a sideways trading range before some late buying ahead of the Independence Day holiday on Thursday pushed the market to a high of $83.93 ahead of the close. The August WTI contract settled up $1.07 at $83.88 and the September Brent contract settled up $1.10 at $87.34. The product markets ended the session higher, with the heating oil market settling up 46 points at $2.6343 and the RB market settling up 2.79 cents at $2.6013.

Technical Analysis:  Following the Independence Day holiday, the crude market on Friday is seen remaining in its recent trading range with muted trading volumes ahead of the weekend. The market will be driven by any news of evacuations and production shut ins in the Gulf of Mexico ahead of the approach of Hurricane Beryl. The oil market is seen finding resistance at its high of $83.93, $84.38 and $85.27. Meanwhile, support is seen at its low of $82.46, $82.00, $81.38, $80.97, $80.51, $80.18 and $79.82.

Fundamental News:  IIR Energy said U.S. oil refiners are expected to shut in about 117,000 bpd of capacity in the week ending July 5th, increasing available refining capacity by 59,000 bpd. Offline capacity is expected to increase to 261,000 bpd in the week ending July 12th.

Colonial Pipeline Co is allocating space for Cycle 40 shipments on Line 1, its main gasoline line from Houston, Texas to Greensboro, North Carolina. The current allocation is for the pipeline segment north of Collins, Mississippi.

The EIA reported that U.S. crude oil stocks fell by about 12.2 million barrels in the week ending July 28th, the largest weekly withdrawal since July 2023. Total U.S. commercial crude inventories, which exclude the SPR, were at 448.5 million barrels by the end of last week, the lowest level since March.

Citi Research said its three month price target for Brent remains at $82/barrel and its 6-12 month target remains at $72/barrel. It stated that geopolitical risks do not necessarily translate into oil supply disruptions.

Shell Plc started evacuating non-essential personnel from at its Perdido and Whale oilfields in the Gulf of Mexico due to Hurricane Beryl. It shut down drilling operations ahead of the approaching storm.

Early Market Call – as of 8:45 AM EDT

WTI – Aug $83.95, up 7 cents

RBOB – Aug $2.5960, down 53 points

HO – Aug $2.6282, down 62 points

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.