Week in Review: Inventory Drawdown, Refinery Utilization, and Economic Growth

Over the past four weeks, U.S. crude oil inventories have depleted faster than usual, pressuring hedge funds with short positions and maintaining firm spot prices and steep backwardation in the futures curve. However, with most short positions repurchased, spot prices and calendar spreads have retreated recently. According to the EIA, commercial crude inventories across the U.S. dropped by 24 million barrels between June 21 and July 19, twice as fast as the average over the last ten years. This depletion eliminated a surplus of 6 million barrels and left inventories 8 million barrels below the seasonal average by July 19. Most stocks were drawn from refineries and tank farms along the Gulf of Mexico and the Cushing hub in Oklahoma, with the Gulf Coast surplus reduced significantly.

The overall balance between diesel supply and demand is still improving. Positive netbacks are not being seen across the US because of similar improvements within the Days of Supply. Refinery maintenance season is upon us, so there may be some pockets of unanticipated downtime.

Refinery utilization is a bit down, partly due to Hurricane Beryl and partly due to other unplanned downtime. As Hurricane season rocks on, more downtime from storm impacts could create a volatile supply situation. There is a lull in tropical activity, but weather analysts predict that August could brew up more storms as the Saharan dust and weather patterns change course.

Negotiations for a ceasefire in Gaza are gaining momentum, with U.S. officials optimistic about a potential six-week truce in exchange for Hamas releasing female, sick, elderly, and wounded hostages. Despite this, oil price declines are being limited by threats to production from Canadian wildfires, a significant draw in U.S. crude stocks, and ongoing expectations of a potential U.S. interest rate cut in September, driven by strong economic data. According to the Commerce Department, the U.S. economy grew by 2.8% annualized in the second quarter, beyond the 2.1% growth many experts had predicted.

In Canada, firefighters are fighting to protect facilities, including the Trans Mountain Pipeline, which carries 890,000 bpd from Edmonton to Vancouver. The pipeline is currently still operating under a sprinkler protection system.

Prices in Review

Crude futures are on track for a weekly drop of more than 70 c/bbl and the third weekly decline. Yesterday morning, as equities futures rose and the US dollar declined, prompt crude prices increased by more than 60c/bbl, along with wider markets. Alongside the rise in physical oil prices, the Sept. 24 vs. Oct. 24 WTI prompt spread finished up more than 15c/bbl at +$1.17/bbl.

Crude opened the week at $80.39 and saw decreases throughout the week. This morning, crude jumped back up and opened at $78.35, an overall decrease of $2.05 or -2.5%.

Unlike crude, diesel saw some slight increases this week. It opened at $2.4258 on Monday and increased throughout the week. This morning, diesel opened at $2.4739, an increase of almost 5 cents or 1.9%.

Gasoline saw some up-and-down trends this week after opening at $2.4562 on Monday. This morning, gasoline opened at $2.4721, an overall increase of nearly 2 cents or 0.65%.