Bearish API Oil Report Cancels Out Positive U.S. China Trade Talks

Bearish American Petroleum Institute (API) report
U.S. China trade talks positive for oil prices
The Energy Report

The Energy Report

Energy Report 09-5-2019

 

Trade Talk Hopes and Inventory Scope

 

Oil prices want to rally on scheduled U.S. China trade talks but are hesitant to add to yesterday’s gain after a bearish American Petroleum Institute (API) report. 

 

The Fox Business Network reported that “Chinese Vice Premier Liu He is said to have held a phone call with U.S. Trade Representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin – where both parties agreed to hold what will be the thirteenth round of high-level economic talks in Washington early next month.” The news sent stocks soaring, but oil is reluctant to follow suit.

 

The API seems to be trying to get in line with the Energy Information Administration (EIA) by reporting a 401,000-barrel increase in crude oil supply. The expectations were for a 2.5 to 3.0 million barrel drop so the market is going to wait until they see the EIA data before they get too excited about the trade talks. They will have to wait a bit longer as the EIA will be delayed until 10 am central time due to the Labor Day holiday. The API also reported that supply in Cushing, Oklahoma fell by 238,000 barrels, much smaller than the big draw we saw the week before. 

 

The API did report draws in products, but smaller than expectations. Distillate supply was down by 1.2 million barrels versus expectations for a build of 1.8 million barrels. Gasoline fell by 877.000 barrels, but the market was looking for about 1.5 million. Still, the numbers suggest strong demand. So, now we await the EIA report this morning.

 

The EIA data will be the last solid look we will get at real supply and demand. Next week's numbers will be hard to guess as imports, exports and demand will be all messed up due to the storm. Right now, it looks like the demand destruction from the storm might not be as bad as feared. Of course, this storm's path has been very unpredictable. Even the best computer weather models got the storm track wrong. So, who knows what the ultimate impact will be? The impact on production in the U.S. has been negligible. The impact on demand, greater.

 

Still, our take on the big picture is that the trend of U.S. supply is on a downward trek and global oil demand weakness has been overstated. Global demand for oil is exceeding expectations. This is especially true in China where demand, according to Oil Price, has China not only importing 10.64 million bpd in April, a new record for China, it’s H1 imports of crude represented an 8.8 percent rise year over year or 800,000 bpd. China’s August imports by its oil majors PetroChina and Sinopec increased 2.03 percent over July imports, which is larger than the increase seen in July of 1.25 percent. It is largely expected that the two oil majors will process even more crude oil this month, as refinery maintenance slows. U.S. demand has also exceeded expectations. For all the folks predicting trade war doom and gloom for the U.S. economy, the fact is it hasn’t impacted the U.S. driver yet. It probably won’t.

 

While Bernie Sanders calls for an immediate ban on fracking, the U.S. energy industry deals in reality. Bloomberg News reports that “Exxon Mobil Corp. Chief Executive Officer Darren Woods is eyeing oil and natural gas deals despite calls to reduce emissions, saying any shift in the world’s energy supply will take decades. “Energy transitions take a long time,” Woods said Wednesday at the Barclays CEO Energy-Power Conference in New York. “In the meantime, the world’s rising demand for energy must be met.” Exxon sees oil demand growing at 0.6% per year over the long term and demand for natural gas increasing 1.3% per year even as policymakers look for ways to wean countries off of fossil fuels. That means significant new investments, including acquisitions, will be needed, Woods said, even though shareholders are calling for Big Oil to reduce spending and return more cash to shareholders.”

 

Natural gas has built-in its rally. Heat in the southern part of the nation along with strong LNG exports has given the market a reason for hope. Yet in Europe, a natural gas glut has driven prices near a decade low. The rally in natural gas may depend on today’s injection number. We are looking for a 73 injection.

 

 

 

 

About the Author

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor.