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ANS has big week
Summer travel; geopolitics; falling rig count; hurricane lend support
Steve Sutherlin Petroleum News
Alaska North Slope crude leapt into the top quarter of the $80s on July 1 -- the Monday of the trading week shortened by the Independence Day weekend -- surging $1.38 to close at $87.84. It was the highest close for the Alaska benchmark since it hit $87.99 Apr. 29.
West Texas Intermediate leapt $1.84 on July 1 to close at $83.38 and Brent edged 19 cents higher to close at $86.60.
Crude rode to two-month highs on hopes of rising gasoline and jet fuel demand during the Northern Hemisphere's summer travel season and concerns that Middle East conflict could spread and interrupt global oil supplies.
American Automobile Association forecast that 4th of July holiday period travel will be 5.2% higher than 2023 levels, with automobile travel up 4.8%.
ANS held the zone July 2, closing at $87.52 after shedding 32 cents, while WTI fell 57 cents to close at $82.81 and Brent shed 36 cents to close at $86.24.
The day was marked by market cooling signals from Federal Reserve Chair Jerome Powell who said inflation had reentered a downtrend after spiking at the start of the year, however it was too soon to say if the Fed could lower interest rates by the end of the summer.
"I think the last reading and the one before it do suggest that we are getting back on a disinflationary path," Powell said at the European Central Bank annual Forum on Central Banking in Portugal. "We want to be more confident that inflation is moving sustainably down before we start the process of loosening policy."
Powell's remarks cast a swoon on financial markets but were offset by other factors in crude oil markets. WTI and Brent moved higher in early July 3 Asian trading as Petroleum News went to press.
U.S. crude oil inventories fell by a massive 9.163 million barrels in the week ended June 28, according to reported American Petroleum Institute data released July 2. Analysts answering a Reuters poll had predicted a 700,000-barrel draw.
Motor gasoline inventories jumped, however, by 2.468 million barrels, while distillates fell by 740,000 barrels, the API said. The Reuters poll had predicted a 1.3 million barrel drop in gasoline levels, and a 1.2-million-barrel drop in distillates levels.
Meanwhile, Hurricane Beryl, the earliest Category 5 hurricane on record, continues to threaten disruption of oil activities in the Gulf of Mexico region.
"The weather agencies are suggesting that this is going to be a very active hurricane season," TD Cowen managing director Jason Gabelman told Yahoo Finance July 2.
"If (hurricanes) hit the Gulf Coast, it could disrupt that center of U.S. refining capacity, which is about 50% of total capacity in the U.S.," he said.
Mexican production is also at risk. Beryl is projected to hit the Yucatan Peninsula on July 4.
"Gulf Coast refineries import about 400,000 barrels per day of crude oil from Mexico, representing 25% of the crude oil that is imported into the Gulf Coast," Andy Lipow, president of Lipow Oil Associates said in a July 2 note. "Damage to the oil production facilities as well as to the export locations is a possibility."
ANS slipped 37 cents June 28 to close at $86.46, while WTI slid 20 cents to close at $81.54 and Brent added 2 cents to close at $86.41.
On June 27, ANS gained 92 cents to close at $86.83, WTI gained 84 cents to close at $81.74 and Brent jumped $1.14 to close at $86.39.
ANS traded at a $4.71 cent differential over WTI on July 2 and at a $1.28 differential over Brent.
As the drill turns ... Booming U.S. production has been the wild card that makes it difficult for the Organization of the Petroleum Exporting Countries and its allies to establish firm control of worldwide production levels, but the U.S. phenomenon is waning.
Baker Hughes data released June 28 showed the number of active oil rigs dropped by six for the week to 479, the lowest since 2021. The active rig count has slipped for five weeks, according to Baker Hughes.
Joe DeLaura, global energy strategist at Rabobank, said in a note that the OPEC target for easing some crude production curbs supplies in third quarter 2024 will coincide with a "likely drop in U.S. crude production below 13 million barrels per day," MarketWatch reported July 1.
DeLaura said U.S. oil well productivity has declined for four straight years and that to keep production constant, more drilling is required.
There is a five quarter, or 15- to 18-month, "lag" between operating drilling rigs until oil production begins, DeLaura said.
Rig counts declined through 2023, recently falling below 500, he said. "It is the simple, cold reality that fewer active rigs mean less oil production."
A gallon in every tank The Biden White House is contemplating a new Strategic Petroleum Reserve release before the November election should oil prices push gasoline prices high enough to endanger Biden's reelection bid, the Institute for Energy Research said in a June 25 note. The release might be as large as 30 million barrels.
Biden has withdrawn 291 million barrels, more than any president, including Biden announced "emergency" releases and regularly scheduled sales, the IER said.
"It is unclear how many barrels the Biden administration will replenish given mixed announcements from the Biden Energy Department," the IER said. "Oddly, green groups opposed to the use of oil have not objected to Biden's sales, which are equivalent to 4.4 years of maximum production from Alaska's Willow Project they strongly opposed."
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