With the shock of the UK Brexit political event somewhat in the rear view mirror, the oil market seems to be back to basics as the fundamental rule of supply and demand is moving the market this morning.
On the supply side of the equation, OPEC’s crude production showed an increase of almost a quarter of a million barrels per day in June to 32.88 million for the month. Nigeria with repairs to their war torn pipelines increased output by 90,000 bpd. Saudi Arabia increased as well by 70,000 bpd as is typical in the summer months to generate electricity to power air conditioners. Libya’s production was ramped up in June as rival officials within the country eased up on blocked shipments that took place in May. On the demand side, one analyst summed up the situation saying “earlier this year there was a lot of hope that gasoline would lead crude higher, that’s not turned out to be the case and gasoline will soon be a weight on the market.“ In its monthly report on June 30 the Energy Information Administration said that demand for April decreased by over 250,000 bpd. Another analyst reacted to that saying “the monthly data for April raises doubts about the idea that we have reliably robust gasoline demand to support the entire complex.” Additional EIA data show gasoline stockpiles along the East Coast surged to a record 72.5 million barrels in the week ended June 24 as imports to the region reached a six-year seasonal high.
In morning news, a three year study out of Rystad Energy in Norway estimates that recoverable oil in the U.S. to be 264 billion barrels of reserves. This figure surpasses Russia and Saudi Arabia which have 256 billion barrels and 212 billion barrels of recoverable oil respectively. With over half of the reserves in the U.S. tied to shale oil, the cost of production of course still plays a major factor as Saudi Arabia can pump oil for less than $10 a barrel versus the approximate cost of $40 a barrel here at home.
Currently, crude is down $2.49 to $46.50, RBOB is down over 9 cents, and HO is down 7 cents.