Crude Oil Deficits Expected to Grow; Economy Sends Bearish Signals
- July petroleum futures rallied in June
- Concerns of crude oil shortage in second half of 2024
- Middle East conflicts could expand to the north of Israel
- Natural gas futures are flat, despite warm weather
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Al Levine, Chair
Powerhouse
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The Matrix
June has been generally bullish for petroleum liquids prices. Front-month futures prices for crude oil, diesel and RBOB futures each advanced roughly 4-5% during the month. The gains reflected a Russian undertaking to comply strictly to its OPEC+ quota after exceeding it during April and May. This could cut crude oil availability by nearly one million barrels daily in the second half of the year. Russian fuel exports are now increasing after being damaged by Ukraine drone attacks.
A private bank has estimated a global crude oil deficit of about 200,000 barrels daily in the third quarter. It cited continuing geopolitical risk in the Middle East and disruptive weather events long expected.
The situation in Israel is especially fraught. Israel has been conducting military action in southern Gaza over objections from the United States. This is doubly problematic because one cannot dismiss the possibility that PM Netanyahu’s aims are personal as much as they support national security. Concerns are growing that Israel may now be facing renewed threats from Hezbollah in the north, or even from Iran directly. If Iranian oil assets are targeted we would expect significant bullish action in crude prices.
Crude oil supplies continue to be under hazard in the Suez region. Another Iran-backed group in Yemen is attacking shipping. Many vessels are choosing to transit South Africa adding weeks to their time at sea and cost to deliver.
Despite the bullish crude oil supply outlook, the rate at which prices are advancing has been slowing. Much of this is seasonal. There are also indications that the economy may be set for an easing in the rest of the year.
The Purchasing Managers Indices were more bullish than expected for manufacturing and services in the United States. But May’s measures of leading indicators fell 0.5%. This was weaker than expected. And overseas, the Eurozone manufacturing PMI fell to a six-month low of 45.6. Ironically, analysts had been expecting an increase to 47.9.
Supply/Demand Balances
Supply/demand data in the United States for the week ended June 14, 2024, were released by the Energy Information Administration.
Total commercial stocks of petroleum decreased (⬇) 0.2 million barrels to 1.2879 billion barrels during the week ended June 14, 2024.
Commercial crude oil supplies in the United States were lower (⬇) by 2.5 million barrels from the previous report week to 457.1 million barrels.
Crude oil inventory changes by PAD District:
PADD 1: Up (⬆) 0.4 million barrels to 8.4 million barrels
PADD 2: Up (⬆) 2.4 million barrels to 117.3 million barrels
PADD 3: Down (⬇) 4.4 million barrels to 262.3 million barrels
PADD 4: Up (⬆) 0.3 million barrels to 24.2 million barrels
PADD 5: Down (⬇) 1.1 million barrels to 45.1 million barrels
Cushing, Oklahoma, inventories were up (⬆) 0.3 million barrels to 34.1 million barrels.
Domestic crude oil production remained unchanged at 13.2 million barrels per day.
Crude oil imports averaged 7,054 million barrels per day, a daily decrease (⬇) of 1,250,000 barrels. Exports increased (⬆) 1,230,000 barrels daily to 3.188 million barrels per day.
Refineries used 93.5% of capacity; 1.5 percentage point lower (⬇) than the previous report week.
Crude oil inputs to refineries decreased (⬇) 282,000 barrels daily; there were 16.765 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, decreased (⬇) 368,000 barrels daily to 17.143 million barrels daily.
Total petroleum product inventories increased (⬆) by 2.4 million barrels from the previous report week, up to 830.8 million barrels.
Total product demand increased (⬆) 1,861,000 barrels daily to 21.081 million barrels per day.
Gasoline stocks decreased (⬇) 2.3 million barrels from the previous report week; total stocks are 231.2 million barrels.
Demand for gasoline increased (⬆) 346,000 barrels per day to 9.386 million barrels per day.
Distillate fuel oil stocks decreased (⬇) 1.7 million barrels from the previous report week; distillate stocks are at 121.6 million barrels. EIA reported national distillate demand at 3.977 million barrels per day during the report week, an increase (⬆) of 328,000 barrels daily.
Propane stocks rose (⬆) 1.6 million barrels from the previous report to 71.4 million barrels. The report estimated current demand at 712,000 barrels per day, a decrease (⬇) of 152,000 barrels daily from the previous report week.
Natural Gas
Trading last week was shortened because of Juneteenth. Extreme heat has overwhelmed most of the country. August futures prices fell last week with prices settling at $2.836 on Friday, June 21. This was a weekly loss of less than thirteen cents. The spot natural gas futures market (basis Henry Hub) still finds resistance at $2.90 and support at $2.60.
Degree days are an important indicator of energy demand. The effect of the warmer year now in progress can be seen in degree days developed through June 15. The Climate Prediction Center of NOAA reports 580 Heating Degree Days less than normal for this reporting year and 255 fewer than last year at this time. Cooling degree days have already aggregated 36 CDDs more than normal, and it is early in the cooling season. An analysis of the relationship between energy use and heating degree days has been as high as 0.97 for households.
The Energy Information Administration did not release a full slate of natural gas statistics for the report week of June 14. This demonstrates by their absence how significant the data are when forming judgements on the natural gas situation.
Will intense heat this summer increase cooling demand for natural gas? Are early signs of a slowing economy enough to suggest a demand reduction in the second half of 2024? Will a more intense hurricane season meet expectations? Recent activity is inconclusive.
Working gas in storage was 3,045 Bcf as of Friday, June 14, 2024, according to EIA estimates. This represents a net increase of 71 Bcf from the previous week. Stocks were 343 Bcf higher than last year at this time and 561 Bcf above the five-year average of 2,484 Bcf. At 3,045 Bcf, total working gas is above the five-year historical range.
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