Economic Data from China Cast a Bearish Light on Crude Demand
July 16th, 2019
Tropical Storm Barry shut down 73% (1.38 million bpd) of crude oil production in the Gulf of Mexico but weakened to a tropical storm as it hit Louisiana on Saturday, the westward shift of the storm spared low level New Orleans from massive flooding feared earlier last week. Given less rain than expected 6 to 8 refineries in southwest Louisiana drenched by Barry were still operating. Barry did not significantly damage any offshore oil or natural gas drilling production. Barry also did not cause any significant damage or flooding to refineries in Louisiana that were shut down with 2 restarted on Monday. The storm also appeared to reduce cooling demand due to increased rain and lower temperatures.
Economic data released from China was bearish for crude oil demand yesterday. China reported yesterday that GDP grew at just 6.2% for Q2 which is a 27 year low. In addition, China exported 7.8% less goods to the US in June versus May. China imported 31.4% less good from the US in June versus May. This news was seen as bearish for world petroleum demand outlook and crude prices.
In its monthly drilling productivity report, the EIA stated that US oil output from seven major shale formations is expected to increase by about 49,000 bpd in August to a record 8.55 million bpd. The largest change is forecast in the Permian Basin of Texas and New Mexico, where output is expected to increase by 34,000 bpd to a new peak of about 4.21 million bpd in August. Output in North Dakota and Montana’s Bakken region is expected to increase by about 7,000 bpd to 1.44 million bpd.
Jefferies cut its long-term forecast for Brent to $62 per barrel from $65 per barrel, and for WTI crude oil to $55 per barrel form $60 per barrel. It said the rally in oil prices on heightened political risk around the Strait of Hormuz and hurricane shut ins in the Gulf of Mexico could be short-lived.
Treasury Secretary Steven Mnuchin has said there is a good chance he will return to China along with Trade Representative Robert Lighthizer if phone conversation this week are positive.
Early estimates from Reuters are calling for another big crude draw this week of roughly 3.375 million barrels. API will be out later today and tomorrow we get the DOE update. The impact of Tropical Strom Barry will mostly likely not show up in stats for a couple weeks.