Crude: So many factors, so little time

Crude oil is mixed as strong market fundamentals are competing with trade and geopolitical uncertainty. If it isn’t enough to have to handicap how much OPEC and Non-OPEC producers will agree to raise output, you must balance that against political uncertainty in Europe and the fallout from steel and aluminum tariffs imposed by the Trump administration.

This comes on the heels of a bullish Energy Information Agency Supply report but ahead of the U.S. jobs number, the biggest economic data point this month for oil other than the technical OPEC/NON-OPEC meeting this weekend.

The risk-off trade surrounding political concerns in Italy turned to risk back on as it appeared that a total political meltdown that would lead to Italy’s exit from the EU was unlikely. Besides, recent polls show that Italians are overwhelmingly in favor in staying in the EU block. Yet, risk started to back off a bit after Prime Minister Mariano Rajoy of Spain lost a no-confidence vote, after a corruption scandal in his conservative party, creating uncertainty as Europe has lost one of Europe’s longest-serving leaders.

Markets seemed to take the news that the United States was moving ahead with tariffs on aluminum and steel imports from Canada, Mexico and the European Union, with only mild trepidation as it had priced into a large degree the possibility. 

Howard Steel, a Charlotte, North Carolina company, manufactures gas lines, structural steel and equipment for job sites, such as the 2012 restoration of the Statue of Liberty. It used to pay about 38 cents for a pound of raw material from domestic steel producers. “I’m just sitting here trying to keep up with what do I need to stock,” Howard told FOX Business' Liz Claman. 

He did add that buyers were buying ahead of the tariffs and stocking up if they can. That means he was buying the rumor of a trade tariff. That increased demand and drove up prices. Now after the fact of the tariff he won’t have to buy as much because he stocked up. So, I guess for steel and aluminum it’s going to be "sell the fact." Prices should fall.

Saudi production is rising, hitting a seven-month high and Russia said it could raise output by 300,000 barrels a day in a few months if they agree to increase output. Yet, many OPEC countries think that this is not the right time to raise production because the sharp drop in price scared the cartel out of them. Saudi Arabia production came close to 10.1 million barrels a day in May, according to Petro-Logistics CEO Daniel Gerber.

All of this crazy news weighed on oil even as oil data is rocking. The EIA reported that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 3.6 million barrels from the previous week. At 434.5 million barrels, U.S. crude oil inventories are below average. A 559,000 barrel release from the SPR makes the draw even larger.

Refining demand was strong as refineries operated at 93.9% of their operable capacity last week. Gasoline production increased last week, averaging over 10.4 million barrels per day. U.S. demand is smoking as well. Total products supplied during the last four-week period averaged about 20.7 million barrels per day, up by 1.3% from the same period last year.

Over the last four weeks, motor gasoline product supplied averaged about 9.7 million barrels per day, up by 0.8% from the same period last year. Distillate fuel product supplied averaged over 4.1 million barrels per day over the last four weeks, down by 1.5% from the same period last year. Jet fuel product supplied is up 0.5% compared to the same four-week period last year. Gasoline +534k vs. est. -1,500k Distillates +634k vs. est. -1,200k Crude imports -528k b/d Crude production +44k b/d.