Oil futures: Crude retreat continues amid demand destruction concerns

30 Jun 2022

Quantum Commodity Intelligence - Crude oil futures Thursday showed further signs of weakness after the previous session's selloff, which came as the latest EIA data revealed a build in US refined product stocks.

September ICE Brent futures were trading at $109.25/barrel (2000 GMT), compared to Wednesday's settle of $112.45/b, while the Aug22 contract was valued at more than $5/b above Sep22 on sparse trade ahead of expiry.

At the same time, August NYMEX WTI was trading $105.92/b, versus Wednesday's settle of $109.78/b.

"The four-week moving average of gasoline supplied, the best gauge on demand, fell below 9 million bpd. This is about 600,000 bpd below typical season levels," noted ANZ commodity strategist Daniel Hynes.

Hynes further added the fall was likely due to high US pump prices, which reached an average of $5/gallon this month, although noted the potential demand contraction was at odds with traffic data, which shows a steady pick up in congestion across most major US cities.

After being delayed last week due to technical issues, the EIA showed a 13-million-barrel build in oil product stocks over the past two weeks to 765 million by 24 June, its highest since late January.

The stats revealed that US product stocks were finally building again over the past fortnight, giving some relief to product markets, as refiners ramped up while road fuel demand cooled as record retail prices hit consumers.

The data means that product stocks are now 51.5 million barrels below their 2015-2019 average, narrowing from a 63-million-barrel gap reached at the end of May.

Meanwhile, OPEC+ Thursday made no changes after already deciding at the last meeting to speed up production cuts and raise output by 648,000 bpd in July and August, up from earlier increases of 432,000 bpd.

US President Joe Biden is scheduled to visit Saudi Arabia in July, prompting speculation that further production announcements from OPEC's largest producer could be delayed until then.

OPEC+ delegate talks in the coming weeks are likely to focus on spare capacity as the group continues to miss collective targets by over 2.5 million bpd, while reports emerged at this week's G7 gathering that both Saudi Arabia and the UAE are close to production capacity.

Talks on likely Russian output going forward and a potential price cap, which several Middle East producers oppose, are also being discussed between members.

Two core OPEC members, Libya and Ecuador, face major output problems due to domestic upheavals, leading to sharp drops in exports.