The rally in energy prices has run into a figurative wall of fundamental concern and is seeing a heavy sell-off across the board to start Wednesday’s session. Tuesday morning it seemed like there was little to slow the upward momentum as WTI broke above $75 for the first time since November 2014, but 2 oil market reports and more trade talk have rapidly turned the tables.
Prices finally found some headwinds Tuesday after the EIA’s monthly Short Term Energy Outlook sparked concerns about the supply/demand balances for petroleum in the US and abroad. The DOE’s analytical arm is forecasting that WTI prices will drop to the low $60s in 2019 as global supply outpaces demand. To put the uncertainty of this (and pretty much any other) oil price forecast in perspective, the 95% confidence interval calculated by the EIA is a WTI price between $38 and $110 next year.
OPEC’s monthly oil market report showed that Saudi Arabia wasted no time ramping up its production. The Kingdom adding more than 400,000 barrels/day during June, enough to offset heavy losses in Libya, Venezuela & Iran and increase the total OPEC production for the month. The OPEC report also hinted that supply increases would outstrip demand over the next year, and noted how rising prices are likely to contribute to slowing consumption globally.
New tariff threats from the US & China have global equity markets in a “Risk off” mode this morning, with major indices in Asia, Europe and the US all deeply in the red. While the correlation between equity and energy price movements has been weak this year, the fear trade seems to be influencing both asset classes so far today.
Hurricane Chris is now a category 2 storm, but is still forecasted to remain off-shore of the US East Coast. The current path does have the chance of a landfall near St. John’s Newfoundland, not to be confused with St. John New Brunswick where the Irving Oil Refinery is located. The remnants of Hurricane Beryl still have a good chance of reforming near the Bahamas, although it’s unclear what path it might take should that happen.
The API was said to report another large crude draw of almost 6.8 million barrels last week. Gasoline stocks declined 1.6 million barrels while diesel stocks increased by 1.9. The DOE’s weekly report is due out at its regular time today.