An Encouraging EIA Report

OPEC oil production has crashed to 23.75 million BPD in May
Above-average crude oil inventories for this time of year
Natural gas is getting weighed down by significant supply.
The Energy Report

The Energy Report

 

The Phil Flynn Energy Report 

Fly in the Ointment 

Demand is rising, and production is falling, but China might be the fly in the oil market ointment. The EIA’s weekly report was a feel-good story about the resilience of American people and the American economy and the road back as oil and gas demand were on the rise, and that gave a boost to petroleum prices.


Oil prices are giving back their demand growth inspired gains as the market is concerned about rising tensions between the U.S. and China. President Trump is going to have a press conference about China’s new security law for Hong Kong, and oil traders are concerned that this could lead to another U.S.-China trade war and kill oil demand. That demand has shown signs of coming back much more energetic and faster than most people had expected in China and the U.S. as well. A big jump in U.S. oil refinery runs, and a leap in U.S. gasoline demand had oil traders driving prices to post-coronavirus highs.

Demand increases are coming as U.S. production continues to plunge and report overnight that OPEC oil production has crashed by 6.3 million barrels per day (BPD) to 23.75 million BPD in May, according to JBC data. All of this would suggest that the world is going to see the global oil oversupply start to disappear as long as we don’t take a big step back with another trade war.

The EIA numbers were encouraging. While the overall commercial crude oil inventories increased by 7.9 million barrels from the previous week, we saw a big 3.395 million-barrel draw at the Cushing, Oklahoma delivery point. We also saw a 3.96 million barrels drop in the Midwest crude oil supply. The reason for the build was a 10.249 million barrel build on the Gulf Coast. We also saw 2.11 million barrels of oil go into the Strategic Petroleum Reserve at 534.4 million barrels. Crude oil inventories are about 13% above the 5-year average for this time of year.

Yet refinery runs and gasoline demand were on the rise, and that shows that as the U.S. starts to open up its economy, demand for oil will spike. We saw gasoline demand snapback to 7.253 million BPD. Total motor gasoline inventories decreased by 0.7 million barrels last week. Still, while demand is coming back, we have a long way to go to get back to 1-year ago levels. The EIA stated that, "Demand based on products supplied over the last 4-week period averaged 16.2 million barrels a day, down by 20.1% from the same period the previous year. Over the past 4 weeks, motor gasoline product supplied averaged 7 million barrels a day, down by 25.7% from the same period last year. Distillate fuel product supplied averaged 3.5 million barrels a day more than the past four weeks, down by 13.6% from the same period the previous year. Jet fuel product provided was down 66.6% compared with the same 4-week period.”

Natural gas is getting weighed down by significant supply. The EIA reported that working gas in storage was 2,612 billion cubic feet (BCF) as of last Friday, according to EIA estimates. This represents a net increase of 109 BCF from the previous week. Stocks were 778 BCF higher than last year at this time and 423 BCF above the 5-year average of 2,189 BCF. At 2,612 BCF, the total working gas is within the 5-year historical range

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About the Author

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor.