MARKET SNAPSHOT

Friday, July 19, 2019
By Dr. Nancy Yamaguchi

Oil prices handed back all of last week’s gains, and more. WTI crude prices have retreated to the $55-$56/b neighborhood, after last week’s rally that brought prices to the $60/b level for the first time in seven weeks. WTI crude prices opened this morning $4.74/b (7.8%) below last Friday’s level. Prices this morning have not yet strengthened despite setbacks in U.S.-Iran relations and renewed geopolitical tension. The week brought price volatility, with conflicting signals about easing and rebounding tensions in the Persian Gulf, a drop in crude supply confounded by an increase in refined fuel supply, and a telephone conference call between U.S. and Chinese officials that raised market hopes yet yielded no visible results. Our weekly price review covers hourly forward prices from 9AM EST Friday July 12th through 9AM EST Friday July 19th. Three summary charts are followed by the Price Movers This Week briefing for a more thorough review.

PRICE MOVERS THIS WEEK : BRIEFING

Oil prices fell, rose and fell as markets attempted to sort out one-step-forward, two steps-backward relations between the U.S, and Iran and the U.S. and China.

U.S. and Chinese officials announced that they would hold a telephone conference on Thursday, but they did not release details or make note of any progress.

Prices fell on Tuesday when U.S. Secretary of State Mike Pompeo stated that Iran was ready to renegotiate a nuclear deal. Iran then denied this. On Thursday, the possible re-opening of communication between the U.S. and Iran was set back when the U.S. announced that it had destroyed an Iranian drone in the Strait of Hormuz. Iran’s Deputy Foreign Minister stated “We have not lost any drone in the Strait of Hormuz nor anywhere else.” Iran’s Revolutionary Guard said that it would post images taken by the drone both before and after the U.S. claimed it had destroyed it. Also on Thursday, Iran seized UAE-based tanker that it accused of smuggling fuel. The tanker was reported to be carrying very little cargo. WTI crude prices shed around $4.75/b this week. Despite the renewed geopolitical tension, today’s prices have not yet strengthened. WTI prices dropped back below $56/b today, after falling as low as $54.72/b yesterday.

Tropical Storm Barry caused disruptions and flooding, but they were less severe than expected. Storm Barry made landfall as a Category 1 hurricane, but it was quickly downgraded. Although wind speeds slowed, rainfall was copious, creating widespread flooding hazards. The U.S. Energy Information Administration (EIA) reported that U.S. crude oil production fell to 12.0 million barrels per day (mmbpd) during the week ended July 12^th, as production facilities in the Gulf region were shut down in preparation. The weekly record-high was 12.4 mmbpd reported for the week ended May 31^st. Refinery fuel production quickly recovered.

The week brought a drawdown from U.S. crude oil inventories, but it was overwhelmed by additions to refined fuel inventories. On Tuesday, the American Petroleum Institute (API) reported a drawdown of 1.4 million barrels (mmbbls) from crude oil inventories plus a small draw of 0.5 mmbbls from gasoline inventories. Diesel inventories rose by 6.2 mmbbls. Official statistics were more bearish. EIA reported an inventory drawdown of 3.116 mmbbls of crude oil more than countered by inventory builds of 3.565 mmbbls of gasoline and 5.686 mmbbls of diesel. The net stock build was 6.135 mmbbls.