Energy Fundamentals Prevail in the Market

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Crude Oil and Gasoline strengthened amid stronger-than-expected demand, but Natural Gas weakened on oversupply worries.

Crude Oil

Crude Prices Elevated on Unexpected Decline in Stocks
  • WTI crude futures held slightly above $83 per barrel on Friday and were set to advance for the fourth straight week as falling US crude inventories and signs of strong seasonal demand supported oil prices.
  • WTI futures strengthened +1.7% w/w, as US crude stockpiles declined by 12.2 million barrels last week, far exceeding expectations for a 680k barrel draw. This was the biggest decline in almost a year.
  • Supply concerns were also present amid the threat that hurricanes in the Gulf of Mexico could threaten extraction activity for key producers.
  • Furthermore, escalating geopolitical tensions in the Middle East heightened concerns about oil supply following reports that Israel killed a senior Hezbollah commander, prompting Hezbollah to retaliate near the border.

Gasoline

The Buildup Continues in Gasoline Inventory
  • Gasoline futures in the US hovered near $2.56 per gallon, reaching a nine-week high amid indications of reduced supplies and increased demand, which outweighed recent efforts by the US government to boost supply.
  • EIA reported a sharper-than-expected draw in national inventories in the last week of June, with gasoline stockpiles declining by 2.21 million barrels.
  • Concerns arose over the supply of refined petrochemicals, with Saudi Arabia underscoring OPEC+’s capability to adjust production levels and extend output cuts.
  • Additionally, the US Department of Energy sold 1 million barrels of gasoline from Northeastern supply reserves to BP and Vitol in an attempt to ease prices at the pump.

Natural Gas

Natural Gas Drops -25% from Yearly High
  • US natural gas futures fell below $2.32/MMBtu, the lowest in seven weeks, due to increased production and oversupply.
  • NYMEX natural gas prices plummeted more than -25% from the 5-month high of $3.129/ MMBtu reached on June 11, 2024.
  • A heat wave is expected to persist through mid-July, but output in the lower 48 states averaged 101.8 bcfd so far in July, up from June’s 100.2 bcfd.
  • The latest EIA report showed gas storage was 18.8% above the seasonal norm.
  • Meanwhile, LNG export plant flows are slightly lower in July when compared with June, mainly due to reduced feedgas at Cheniere Energy’s Sabine Pass.