Market Awaits Outcome of Hurricanes
August 26, 2020
The inventory update from the API came out yesterday afternoon and it said that crude stocks were down 4.5 million barrels with the barrels at Cushing, Ok down 646,000. Gasoline stock showed another big decline with stock down 6.4 million barrels and distillates were up 2.3 million barrels.
The Bloomberg estimate for today’s DOE inventory report are looking for crude oil stocks to be down 2.634 million barrels, Reuters estimate is down 3.7. Gasoline stocks are called to be down by Bloomberg 2.029 million barrels and Reuters down 1.5. Distillates are called down 307,000 by the Bloomberg estimate and Reuters is estimating stocks down 726,000.
The energy markets are surprisingly down in early trading as Hurricane Laura is gaining strength and some predictions say she could be a Category 4 hurricane. Laura has already shut in 84.3% of Gulf of Mexico oil production and 60.94% of natural gas production.
Reuters is reporting that Hurricane Laura will make landfall by early Thursday in an area that accounts for more than 45% of total US petroleum refining capacity and 17% of oil production, according to the Energy Information Administration. It appears that traders are now going to take a wait and see approach as to where, and how the storm progresses. If major damage is done to refinery and pipeline assets, then the market is likely to adjust higher and if the storm passes with limited impact to refineries then prices are like to ease back.
We will look for some confirmation in today’s DOE inventory report for the trend that gasoline supplies are going down, not sure where it is all going, likely to exports, and distillate supplies continue to grow. Many forecasters are still calling for crude supplies to be in a deficit in the late Q4 2020 or early in 2021.
Platt’s reported that China’s July crude oil imports from the US surged 524.4% from June to a fresh high of 3.67 million metric tons, or 866,793 barrels per day, propelling the US to become China’s fifth-largest supplier in the month, data from the General Administration of Customers showed August 26th. Some of this is likely China’s efforts to make some progress on their purchase agreements under the Phase 1 trade deal. But the other fact is that China’s crude imports were up overall and that is being seen by traders as a good sign for their economy and energy demand.
Propane estimates for today’s inventory update are looking for a build to inventory of 1.2 million barrels. The five year average for this reporting week is a build of 1.813 million barrels. Exports we up last week so we will see if that trend continues and if it does maybe the end of stock building here in the US is over for now. If stocks are done building it should offer support to prices despite the fact that propane has been in a tight range for some time now and it is likely to continue just like the rest of the energy markets.