Phil Flynn's take on EIA report - June 27

[dan_s]

Phil Flynn at 8:49AM ET

Oil had a "Big Draw McGraw" with the largest weekly crude oil drawdown since 2016 and the fifth largest in EIA recorded history. That put crude supply back down to early May levels. Ok, maybe records only goes back to the 1980s but the point is that the U.S. crude increases in recent weeks were more than likely overstated, and now the adjustments are going to look scary. The EIA reported that U.S. oil imports plunged, and U.S. exports surged to a record 3.77 million barrels a day. It is clear that the bottlenecks, real and imagined, that caused the big increases in supply in recent weeks are now over.

It was not just oil. The EIA also reported that gasoline inventories fell by 1 million barrels and distillates by 2.4 million barrels as U.S. demand is soaring. The EIA reported that total demand on the U.S. system increased 615k barrels per day setting a new high of 30.25 million barrels of oil per day. Drivers are on the road as the four-week average has U.S. gasoline demand at 9.7 million barrels per day, up by 2.1% from last year. Distillate fuel demand also has rebounded, hitting 3.9 million barrels per day, up by 2.9% from the same period last year. Jet fuel demand also up 5.7% compared with last year.

Yet despite these stunning numbers there are still many doom and gloom people that are down on the economy. That is why the oil market will take its cue from G-20 headlines. The Wall Street Journal is reporting that “Chinese President Xi Jinping plans to present President Trump with a set of terms the U.S. should meet before Beijing is ready to settle a market-rattling trade confrontation, raising questions of whether the two leaders will agree to relaunch talks. Among the preconditions, said Chinese officials with knowledge of the plan, Beijing is insisting that the U.S. remove its ban on the sale of U.S. technology to Chinese telecommunications giant Huawei Technologies Co. Beijing also wants the U.S. to lift all punitive tariffs and drop efforts to get China to buy even more U.S. exports than Beijing said it would when the two leaders last met in December.” That is an interesting proposal. President Trump did suggest that maybe Huawei could be part of a deal. Yet with the large concern that Huawei could be a threat to national security, makes this a very tough negotiating point. If Huawei is China’s line in the sand to get Trump to give in, they had better get ready to give Trump a blank check to fill out with a number that he would like when it comes to what China will need to buy from the U.S. It’s got to be big, really big.

Oil will also look for headlines out of OPEC and Russia ahead of the July 1st and July 2nd meeting. Dow Jones reports that “Iraq backs an extension of OPEC oil output curbs, the country's oil minister said Thursday, adding scenarios for deeper cuts were among options being considered.” That’s right, deeper cuts being considered. OPEC, if they can get Russia to go along, may want to drain the global supply once and for all. Look for headlines on talks of a larger cutback. < If Phil is right about OPEC announcing additional cuts, WTI will move quickly over $60/bbl. - Dan.

Goodbye coal, hello natural gas! The EIA reported that In April 2019, U.S. monthly electricity generation from renewable sources exceeded coal-fired generation for the first time based on data in EIA’s Electric Power Monthly. Renewable sources provided 23% of total electricity generation to coal’s 20%. This outcome reflects both seasonal factors as well as long-term increases in renewable generation and decreases in coal generation. Thanks to an abundant supply of fracked natural gas as well. Freedom gas on the march! On top of that we get the EIA Nat gas number today. This may be the last bearish report we get for a while as rainy, and dreary, and cold gets replaced with hot, muggy, and sticky. Get your AC cranking.