Despite a tumultuous week, oil futures have managed to claw back gains lost following OPEC’s pivotal June 2 decision to boost crude oil production by approximately 2.2 million barrels per day later this year.
Conflicting Demand Projections
A battle of demand forecasts has emerged, with OPEC projecting robust oil demand growth of 2.2 million barrels per day, the U.S. Energy Information Administration slightly raising its 2024 demand growth estimate, and the International Energy Agency slashing its forecast to below 1 million barrels per day, asserting that global oil demand will peak by the end of the decade.
Despite these discrepancies, all groups concur on one key point: a projected supply deficit will persist at least until the onset of winter, as highlighted by Commerzbank analysts.
Market Performance
The week concluded with Nymex crude oil for July delivery settling up 3.9% at $78.45 per barrel, while Brent closed the week up 3.8% at $82.62 per barrel, both seeing marginal declines on the last trading day.
In contrast, July Nymex natural gas closed the week 1.3% lower at $2.881 per million British thermal units, including a 2.6% fall on Friday.
Refinery Activity and Fuel Inventories
U.S. oil refineries have been running at their swiftest pace for this time of year since pre-pandemic times, as reported by the EIA. Refineries ran at 95% of their operable capacity, processing 17.5 million barrels per day of crude and other feedstocks in the week ended June 7, the highest seasonal rate since 2018.
However, the surge in fuel inventories presents a concern, with gasoline inventories now exceeding the 10-year seasonal average by 1 million barrels, a stark contrast to the 6-million-barrel deficit recorded just two months prior.
Impact on Refining Margins
The average 3-2-1 crack spread for June currently stands at $24 per barrel, down from $31 per barrel in March but aligning with pre-pandemic levels, indicating a well-supplied fuel market. This decline in margins due to rising inventories is likely to signal a forthcoming slowdown in refinery processing activities in the coming weeks.
The top six U.S. refiners by processing capacity, including Marathon Petroleum, Valero Energy, Exxon Mobil, Phillips 66, PBF Energy, and Chevron, remain at the forefront of this developing situation.
Market Reactivity
The energy sector suffered a blow, with the Energy Select Sector SPDR ETF ending the week as the worst performer, down by 2.2%.
Among the notable gainers in the energy and natural resources sector over the past five days were Nano Nuclear Energy, Texas Pacific Land Trust, Flux Power, Ivanhoe Electric, and Enovix, with substantial percentage increases.
In contrast, the top losers included Atlas Lithium, Contango Ore, Battalion Oil, BW LPG, Arcadium Lithium, Compass Minerals, NextEra Energy Partners, Gold Fields, Solaris Resources, and ProFrac Holding, reflecting a downward trend in the market.
Market Insights
As the industry navigates these fluctuations, investors and analysts are keeping a close eye on the ever-evolving dynamics of the energy market to anticipate future trends and investment opportunities.
Source: Barchart.com