Weekly Energy Recap: Oil Bulls Come Back Strong

Oil prices ended a calm week and made the second weekly gain, though the US dollar was maintaining its relative strength and despite OPEC producers’ July oil output hitting a 15-month high at 26.72 million barrels per day (bpd), up 610,000 bpd from June.

On the week closing, Brent crude price ended the week higher at $75.41 per barrel. WTI ended the week higher at $73.95 per barrel. The Brent/WTI spread has narrowed to $1.46 per barrel.

Ongoing declines in oil inventories are illustrating the strong market fundamentals along with the declining stockpiles in gasoline and middle distillate that further signaled a healthy demand during the summer driving season.

Hence, gasoline demand in several major regions has returned to pre-pandemic levels amid rising road traffic data. Also, the Jet fuel market is showing signs of improvement.

The US market is further tightening with demand surpassing 21 million barrels per day (bpd) outpacing supply. Commercial oil stocks have dropped to their lowest since January 2020, but the supply can’t get much tighter. The US oil rig count continued rising, but US oil output was slowly trending higher, reaching 11.4 million bpd two weeks ago. It has since deteriorated back to 11.2 million bpd last week as EIA reported.

Monthly exports of US crude once again fell below 3 million bpd in May. Total domestic crude exports averaged 2.71 million bpd that month, down from 3.24 million bpd in April.

As China’s crude oil imports have decreased in the first half of 2021, compared to the first half of 2020, as the first drop in 8 years. Obviously, China stockpiled oil at low prices around $20-40 a barrel in the first half of 2020.

Oil prices now are at more than doubled levels compared to last year, but China can’t use its commercial stocks to limit the rise in oil prices even if China has around 80 days of oil in storage, including those in its strategic petroleum reserve (SPR), oil storage at oil firms and commercial stocks. India also can’t do that as their oil stocks are only sufficient for approximately 20 days at the most.

Concisely, oil prices will retain strong momentum with China and India stocks deplete.

The latest figures from the Commodity Futures Trading Commission (CFTC) on July 27, 2021 showed that long positions on crude oil futures on the New York Mercantile Exchange (NYMEX) numbered 608,688 contracts, up by 15,108 contracts from the previous week (1,000 barrels for each contract).