Crude oil can't seem to find a bid even after the Energy Information Administration (EIA) reported a whopping 4.4 million-barrel-drop in weekly crude oil supply, much larger than expected. In what seems to be more of a mood play than reality, oil is being weighed down by negative sentiment, combined with seasonal weakness. In other words, the market is more focused on threats to demand than current strong demand. Glut is the talk on the street even though current demand trends, at least right now, would suggest that that glut is not going to get that much bigger.
So, oil is moving on other issues each day, like Fed speak and the Chinese stock market and other issues. If the Fed raises rates, the fear is that robust U.S. demand will fall. In China, if demand slows, then oil is toast.
In the short term, oil did not seem to get as much help from the gasoline market as expected. The EIA reported that motor gasoline demand averaged 9.5 million barrels per day, up by 5.4% from the same period last year, but less than last week. Distillate demand was weak, averaging over 3.7 million barrels per day during the last four weeks, down by 4.1% from last year.
Overall, demand is strong as U.S. crude oil refinery inputs averaged about 17.1 million barrels per day--313,000 barrels per day more than the previous week's average. Refineries operated at 96.1% of their operable capacity last week. Gasoline production increased last week, averaging 10.0 million barrels per day. Distillate fuel production decreased last week, averaging over 5.0 million barrels per day according to EIA.
Yet, oil is still having problems. If you forget about outside fundamentals or the size of the moves, oil prices really are moving in step with normal seasonal trends. In April, ahead of the summer driving season, oil bottomed and went straight up to the Fourth of July and sold off from that point. If that pattern continues oil should bottom the second or third week of August. But because oil fell so hard in July, it is possible we are bottoming early and if we see oil close strong over $1 higher we could see a short-covering rally.
The mood thus far still is looking heavy so it may see a headline to turn us around. It's Obama's way or war! President Obama gave a snarky speech in defense of the Iranian hostage deal.