Energy Stockpiles Surge: Fed Rate Cut and China’s Growth

Crude Oil

Inventory remains solid

• Oil prices dropped by more than 1% to settle at $78.3 per barrel, gaining over 11% on a YTD basis, following comments from Fed officials suggesting that interest rates could remain higher for longer, potentially curbing demand from major crude consumers.
• Higher interest rates typically slow economic activity, which could weaken oil demand. Also, rising US fuel inventories ahead of the summer driving season may dampen oil prices.
• Latest EIA data showed that crude oil imports in China increased in April, signaling improving demand in the world’s top crude importer.
• However, recent US data showed consumer confidence slipping to a six-month low due to expectations of rising prices.

Gasoline

Gasoline stockpiles strengthened, despite market expectations

• Gasoline futures in the US dropped to $2.5 per gallon, the lowest since late February, amid ample domestic supply as markets gauged demand expectations ahead of the key Memorial Day weekend.
• New data from the EIA showed that gasoline stockpiles rose by nearly 1 million barrels on the week ending May 3rd, surprising markets that expected a 1.2 million draw, to mark the second consecutive week of unexpected build in domestic inventories.
• The increase took place despite another jump in product supplied, which rose by 178 thousand barrels to 8.8 million in the period, outperforming the slowing demand for other fuels.
• Prices have also been pressured by lower costs of crude oil inputs, which have retreated sharply since the start of the month as lower concerns of military escalation trimmed the risk premium for crude oil.

Natural Gas

Natural gas futures reached a 3-month high amid lower output

• Natural gas futures declined to $2.25/MMBtu, driven by conflicting factors in the LNG market. Concerns over delays arose from interruptions at the Golden Pass LNG project, while optimism grew among investors as Freeport initiated operations on a third train.
• Golden Pass LNG confirmed interruptions on the Texas export project could be coming after reported worker furloughs, citing ongoing negotiations between its engineering, procurement, and construction (EPC) contractors.
• Meanwhile, gas flows to LNG export plant in Freeport are anticipated to reach a 16-week peak of 1.7 bcfd, a significant increase from the 1.3 bcfd average of the past week and the 0.4 bcfd recorded in April.
• Latest EIA data showed US utilities added 79 billion cubic feet (bcf) of gas into storage last week, compared with market expectations of an 87 bcf increase.
• Simultaneously, output has fallen by 2.3 billion cubic feet per day over the past six days, reaching a preliminary 16-week low of 95.5 bcfd.