Exclusive Analysis by Dr. Nancy Yamaguchi

West Texas Intermediate (WTI) crude oil futures prices surged midweek, hitting highs of over $43 a barrel for the first time since March. The price surge came amid news of a significant drawdown from crude oil inventories, plus reported progress toward the next federal economic stimulus bill. Fuel buying also was boosted leading up to Hurricane Isaias. Since Wednesday, however, prices have retreated. Oil company stocks have been battered, and the global market is wary of increased U.S.-China tension. Crude prices are now in the neighborhood of $41.25–$41.50 a barrel. Some gains remain, however—prior to this week, WTI prices had been range-bound within a one-dollar range above and below $40 a barrel. This week, prices broke out of this range, and they are holding above $41 a barrel. Oil prices appear to be headed for a finish in the black this week.

Unemployment statistics and the Jobs Report are always eagerly awaited, but they are especially important now. Early this week, there was optimism on surrounding the next economic stimulus bill. Now, negotiations have stalled. The March CARES Act provided a $600 boost to weekly unemployment benefits, but this provision expired at the end of July. What will be the nature and extent of the next wave of federal aid to the economy?

The Department of Labor reported that 1,186,000 people filed initial unemployment claims during the week ended August 1, a decrease of 249,000 from the prior week’s upward-revised level of 1,435,000. During the week of March 28, initial jobless claims hit a peak of 6,867,000. From that peak, initial jobless claims fell for 15 weeks. July brought a setback, and claims rose again. This week’s data brings some optimism, since initial claims are falling once again, but the optimism is tempered by the number of people still unemployed. During the 20 weeks since U.S. states began to issue shelter-in-place orders, 55.3 million Americans have filed initial jobless claims. The DOL reports that 16.1 million people claim ongoing benefits.

The Bureau of Labor Statistic (BLS) published the July Employment Situation Report (also known as the Jobs Report.) Total nonfarm payroll employment rose by 1.8 million in July, and the unemployment rate fell to 10.2%. The results were better than expected, and markets should be expected to react favorably today.

Tropical Storm Isaias was upgraded to Hurricane Isaias, and it made landfall on Monday in North Carolina. The storm system continued up the coast all the way to Maine, causing tornadoes, high winds and flooding. Twelve fatalities were reported. Over 3 million homes and business lost power. Some repairs in the Northeast reportedly were complicated by COVID-19 safety protocols, which required linemen to work singly rather than in pairs.

As of the time of this writing, the Johns Hopkins Coronavirus Resource Center reports that global cases of COVID-19 have surpassed 19 million (19,128,901, with 715,555 deaths.) Confirmed cases in the U.S. have risen to 4,884,406. U.S. deaths attributed to the disease have reached 160,111.

WTI crude futures prices opened at $41.97 a barrel today, up by $1.63 a barrel (1.8%) from last Friday’s open of $40.34 a barrel. Prices surged midweek, but they have retreated since then. Today, prices have continued to fall, but the stronger-than-expected Jobs Report may support prices above the $41 a barrel level. Oil prices may end the week in the black. Our weekly price review covers hourly forward prices from Friday, July 31 through Friday, August 7. Three summary charts are followed by the Price Movers This Week briefing, which provides a more thorough review.

Source: Prices as reported by DTN Instant Market

Gasoline Prices

Gasoline futures prices opened at $1.2315 per gallon today on the NYMEX, compared with $1.197/gallon on Friday, July 31. This was a gain of 3.45 cents (2.9%.) March brought a crippling collapse of nearly 87 cents per gallon, but prices gradually crept back up in April and May. U.S. average retail prices for gasoline edged up slightly by 0.1 cent/gallon during the week ended August 3. Eight weeks ago, retail prices reclaimed the territory above $2 per gallon. Retail prices averaged $2.176/gallon at the national level. Gasoline futures prices followed crude prices up midweek, but they have fallen off this peak since then. The downward price trend appears to be stabilizing this morning, with gasoline futures trading in the range of $1.21/gallon to $1.24/gallon. The week appears to be heading for a finish in the black. The latest price is $1.2139/gallon.

Source: Prices as reported by DTN Instant Market

Diesel Prices

Diesel opened on the NYMEX today at $1.2516/gallon, up by 2.62 cents, or 2.1%, from last Friday’s open of $1.2254/gallon. U.S. average retail prices for diesel eased by 0.3 cents per gallon during the week ended August 3 to average $2.424/gallon. Diesel prices generally have weakened this year, missing some of the price recovery see in crude and gasoline markets. Diesel futures prices rose strongly midweek, but prices retreated quickly. Today, the downward price trend is slowing, and prices appear to be heading for a finish in the black. Currently, diesel is trading mainly in the range of $1.23–$1.25/gallon. The latest price is $1.2354/gallon.

 

Source: Prices as reported by DTN Instant Market

WTI Crude Prices

WTI crude forward prices opened on the NYMEX today at $41.97 a barrel, compared with $40.34 a barrel last Friday. This was a gain of $1.63 a barrel (4.0%.) Prices surged to highs topping $43.50 a barrel midweek, based on crude inventory draws and hopes for another federal economic stimulus package, but prices have trailed down since then. Today’s better-than-expected Jobs Report may stop the downward price trend, allowing oil prices to solidify above $41 a barrel and finish the week in the black. WTI crude is trading mainly in the $41.20–$41.50 a barrel range currently. The latest price is $41.30 a barrel.

PRICE MOVERS THIS WEEK: BRIEFING

WTI crude oil futures prices surged midweek, hitting highs of over $43 a barrel for the first time since March. The price surge came upon news that crude oil inventories had been drawn down significantly. There was progress toward the next federal economic stimulus bill. Fuel buying also was boosted leading up to Hurricane Isaias. After Wednesday, however, prices retreated. Oil company stocks have been battered, and the global market is wary of increased U.S.-China tension. Trade talks now face the additional complication that U.S. President Trump announced that the popular Chinese app TikTok would be banned in the U.S. unless purchased by a U.S. company. Crude prices are now in the neighborhood of $41.25–$41.50 a barrel. Prior to this week, WTI prices had been range-bound within a one-dollar range above and below $40 a barrel. This week, prices broke out of this range, and they appear to be maintaining a level above $41 a barrel. Oil prices appear to be headed for a finish in the black this week.

Unemployment statistics and the Jobs Report are always eagerly awaited, but they are especially important now. Early this week, there was optimism on surrounding the next economic stimulus bill. Now, negotiations appear to have stalled. The March CARES Act provided a $600 boost to weekly unemployment benefits, but this provision expired at the end of July. What will be the nature and extent of the next wave of federal aid to the economy? Some sort of extension of unemployment benefits and a possible payroll tax cut appear likely, but Congress does not have a unified proposal, and the White House has been standoffish.

The Department of Labor reported that 1,186,000 people filed initial unemployment claims during the week ended August 1, a decrease of 249,000 from the prior week’s upward-revised level of 1,435,000. During the week of March 28, initial jobless claims hit a peak of 6,867,000. From that peak, initial jobless claims fell for the next 15 weeks before climbing again over the past two weeks. There were hopes that weekly jobless claims would fall below one million last month. During the 20 weeks since U.S. states began to issue shelter-in-place orders, 55.3 million Americans have filed initial jobless claims. The DOL reports that 16.1 million people claim ongoing benefits.

The Bureau of Labor Statistics (BLS) published the July Employment Situation Report (also known as the Jobs Report.) Total nonfarm payroll employment rose by 1.8 million in July, and the unemployment rate fell to 10.2%. According to the BLS: “These improvements in the labor market reflected the continued resumption of economic activity that had been curtailed due to the coronavirus (COVID-19) pandemic and efforts to contain it. In July, notable job gains occurred in leisure and hospitality, government, retail trade, professional and business services, other services, and health care.” The results were better than expected, and markets should be expected to react favorably today.

Tropical Storm Isaias was upgraded to Hurricane Isaias, and it made landfall on Monday in North Carolina. The storm system continued up the coast all the way to Maine, causing tornadoes, high winds, and flooding. Twelve fatalities were reported. Over 3 million homes and business lost power. Some repairs in the Northeast reportedly were complicated by COVID-19 safety protocols, which required linemen to work singly rather than in pairs.

As of the time of this writing, the Johns Hopkins Coronavirus Resource Center reports that global cases of COVID-19 have surpassed 19 million (19,128,901, with 715,555 deaths.) Confirmed cases in the U.S. have risen to 4,884,406. U.S. deaths attributed to the disease have reached 160,111.

The American Petroleum Institute (API) released information on Tuesday showing a significant drawdown from crude oil inventories. According to the API, 8.857 mmbbls of crude was drawn from stockpiles. Gasoline inventories fell by 1.748 mmbbls. This was partly counteracted by an addition of 3.82 mmbbls to diesel inventories. The API’s net drain on inventories was 6.785 mmbbls. Market analysts had predicted small drawdowns from crude and gasoline inventories plus an addition to diesel inventories.

The U.S. Energy Information Administration (EIA) published official inventory data on Wednesday. The EIA statistics showed a significant drawdown of 7.373 mmbbls from crude oil inventories. Product inventories rose: 1.591 mmbbls of diesel plus 0.419 mmbbls of gasoline. The EIA net result was an inventory drawdown of 5.363 mmbbls. Crude oil inventories have expanded in 21 of the 30 weeks since the first week of January, sending a total of 91.63 mmbbls of crude oil into storage.

During the worst of the oversupply, the EIA reported that crude oil in storage at Cushing rose from 35,501 barrels during the week ended January 3, 2020, to 65,446 barrels during the week ended May 1, 2020, an increase of 29,124 barrels. Cushing stocks fell to 45,582 mmbbls during the week ended June 26. However, the downward trend was reversed during the past five weeks, and Cushing stocks are back up to 51,953 mmbbls.

U.S. crude production declined by 0.1 mmbpd to an average of 11.0 mmbpd during the week ended July 31. According to the EIA, U.S. crude production averaged 13.025 mmbpd in February, the highest total ever. Production fell to 12.25 mmbpd in April, 11.52 mmbpd in May, and 10.9 mmbpd in June. Production in July rose to an average of 11.04 mmbpd.