A Surprising Crude Oil Draw

July 29, 2020 07:43 AM
API reported a surprisingly 6.829 million barrel crude oil draw
U.S. gasoline supply increased by 1.144 million barrels
Gulf Coast will be where we feel the OPEC cuts
Energy Report

Energy Report


The Phil Flynn Energy Report 

Stimulus Stall

Talk of a stimulus stall is holding crude oil back a bit after a surprisingly bullish 6.829 million barrel crude oil draw. The draw in part may be storm influenced in the U.S. This and falling supply in the coming weeks should continue to keep oil in an upward trend. Both fiscal and monetary policy has fueled part of the crude comeback.

Hopes for another shout of stimulus from Washington, D.C. may be in doubt as both sides seem to be far apart on some issues and may be drawing lines in the sand. Free speech is essential to Democrat members of Congress as long as you say what they want to hear. And that isn’t to say the Republican stimulus proposal is big enough. It has its faults as the fiscal hawks want to reign in a substantial extension of unemployment. Still, it ups the ante for the Federal Reserve that not only has assured the market of low rates today but also that they have more tools in their arsenal if Washington politicians put partisan politics ahead of the good of the American people.

Still, the crude oil draw gives oil bulls a leg up and, if the EIA report confirms this, should send oil back towards the mid-40s. The focus had moved away from Cushing, Oklahoma delivery hub that was all the rage when we thought the world was running out of storage, where supplies increased by 1.144 million barrels to the Gulf Coast. The Gulf Coast will be where we feel the OPEC cuts on U.S. oil imports.

Oil products are also of interest as second wave fears of the coronavirus could impact demand. The API reported that U.S. gasoline supply increased by 1.144 million barrels and distillate up by 187,000 barrels.

I’m still bullish on the complex. The pressure on the politicians in Washington will be overwhelming for a compromise. The Fed will do their part. The Wall Street Journal reported, "Federal Reserve officials are likely to continue their debate Wednesday about how to provide more support to the economy now that interest rates are pinned near zero, but are unlikely to announce significant policy changes. The central bank releases an updated policy statement at 2:00 p.m. Eastern time after the conclusion of its two-day meeting. Fed Chairman Jerome Powell follows with a news conference starting at 2:30 p.m., at which he could explain how he and his colleagues are thinking about possible additional steps.

The economic backdrop has changed notably since the Fed's rate-setting committee met 7 weeks ago, mostly for the worse. After surprising rebounds in employment in May and June, many states have seen significant increases in virus infections, leading to renewed curbs on certain commercial activities and a dampening of consumer confidence. 

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About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.