RBOB, ULSD Drop 3% on Flagging Demand, Fuel Stocks Rise


   
   WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York 
Mercantile Exchange and Brent crude traded on the Intercontinental Exchange 
turned lower in afternoon trade Wednesday, sending gasoline and distillate 
contracts down 3% or more after weekly inventory data from the U.S. Energy 
Information Administration showed a bearish 5.2 million bbl build in domestic 
fuel inventories amid flashing signs of demand destruction.

   Wednesday's inventory report, the first in two weeks following a server 
failure experienced by the government entity, was overall bearish, showing weak 
product deliveries that pushed supply into inventory, and recovering crude oil 
production that climbed to the highest output rate since the beginning of the 
pandemic in 2020. Domestic producers pumped 12.1 million bpd of crude during 
the week-ending June 24, up 100,000 bpd from the previous week. U.S. output 
remains about 1 million bpd below the pre-pandemic high.

   Gasoline stockpiles rose 2.6 million bbl from the previous week to 221.6 
million bbl compared with analyst expectations for inventories to have 
decreased by 800,000 bbl. Meanwhile, implied demand for gasoline recovered last 
week, up 417,000 bpd from a 12-week low 8.505 million bpd during the week-ended 
June 17, EIA data show.

   Distillate fuels supplied to the U.S. market fell 294,000 bpd to a 3.568 
million bpd 11-week low last week, with lower diesel demand aligning with a 
slowing U.S. economy. Distillate stocks rose 2.6 million bbl to 112.4 million 
bbl and are now about 20% below the five-year average.

   Bullish elements in the report could be found in crude stocks that fell by a 
larger-than-expected 2.8 million bbl from the previous week to 415.6 million 
bbl last week and are now about 13% below the five-year average. The hefty draw 
occurred as refiners jacked the national run rate up 1% to 95% of capacity last 
week, processing 16.7 million bpd of crude oil, up 403,000 bpd from the 
previous week to the highest input rate since before the pandemic in January 
2020.

   A 700,000 bbl draw from crude oil stored at Cushing tanks in Oklahoma, the 
delivery point for the NYMEX West Texas Intermediate futures, pressed inventory 
there to a 21.3 million bbl 7-1/2 year low. Inventory at Cushing is near the 
minimum operating level that's estimated between 16 and 22 million bbl.

   WTI and Brent futures traded 2.5% higher earlier in the session after 
reports emerged suggesting Saudi Arabia, OPEC's largest producer, might have 
less spare capacity than previously believed. Comments from French President 
Emanual Macron on the sidelines of the Group of Seven summit in Germany earlier 
this week suggested the Saudis, along with United Arab Emirates, at best might 
be able to increase production by 150,000 bpd over the next six months.

   During an OPEC+ meeting Thursday, oil representatives are expected to agree 
on hiking output for August that, on paper, would fully unwind production cuts 
made in the second quarter 2020 in the face of lost demand amid pandemic 
lockdowns. The quota for the Saudis would likely be near the 11.1 million bpd, 
with the quota for the kingdom in July at 10.833 million bpd. Earlier this 
month, OPEC, citing secondary sources, said Saudi production averaged 10.424 
million bpd in May, while the Saudis self-reported output of 10.538 million bpd.

   The reality is Saudi Arabia has never produced above 11 million bpd for a 
prolonged period of time, with the maximum output of 11.5 million bpd reached 
in April 2020 at the height of Saudi market share war with Russia. Aramco, 
Saudi Arabia's state-owned oil giant, previously said it can sustainably 
produce 12 million bpd and increase it to a maximum of 13 million bpd over the 
course of next few years, which compares with production of 10.424 million bpd 
in May. The bulk of that expansion is expected to come from three key oilfields 
known as Zuluf, Marjan and Berri, slated to come into service in 2025 and 2026.

   After concluding a two-day meeting Wednesday, the OPEC+ Joint Technical 
Committee released a document that said the global oil market surplus is likely 
to narrow to 1 million bpd by the end of the year from their previous estimate 
of 1.4 million bpd. Interestingly, the lowering of crude oil surplus 
projections comes as the OPEC+ group continues to produce under quota. In May, 
the shortfall is estimated at 2.7 million bpd.

   OPEC+ agreed to increase July production by 648,000 bpd and is expected to 
repeat approval for another 648,000 bpd for August.

   At settlement, NYMEX August WTI futures fell $1.98 to $109.78 bbl on the 
session, and down from an intrasession high of $114.05 bbl. ICE Brent crude for 
August delivery declined $1.72 to $116.26 bbl after breaching $120 with a 
$120.41 intrasession high ahead of expiration Thursday afternoon, with the 
September contract settling at a $3.81 discount. NYMEX July RBOB dropped 
10.81cts to $3.8270 gallon, with next-month contract expanding its discount to 
the expiring contract to 10.37cts. NYMEX July ULSD futures, which also expires 
Thursday afternoon, fell 16.27cts to $4.0367 gallon and August ULSD futures 
settled at $3.9563 gallon.

    

    

   Liubov Georges, 1.646.359.4088, liubov.georges@dtn.com, http://www.dtn.com/




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