Oil futures declined on Thursday, giving back some of their gains from a day earlier, as traders focused on the prospects for energy demand.
Price action
-
West Texas Intermediate crude for July delivery
CL00,
-2.90% CLN23,
-2.90%
fell 45 cents, or 0.6%, to $72.08 a barrel on the New York Mercantile Exchange after posting a gain of 1.1% Wednesday. -
August Brent crude
BRN00,
-2.60% BRNQ23,
-2.60% ,
the global benchmark, shed 25 cents, or 0.3%, to $76.70 a barrel on ICE Futures Europe. -
Back on Nymex, July gasoline
RBN23,
-2.78%
declined by 1.1% to $2.6126 a gallon, while July heating oil
HON23,
-2.21%
lost 0.2% to $2.3975 a gallon. -
July natural gas
NGN23,
-1.55%
fell 0.7% to $2.316 per million British thermal units.
Market drivers
“The reality is that it is the demand equation that matters the most,” said Naeem Aslam, chief investment officer at Zaye Capital Markets, in market commentary.
“Yes, OPEC is playing an important active role in the market and must never take their eyes off this important aspect,” he said. Last weekend, the Organization of the Petroleum Exporting Countries and their allies, together known as OPEC+, extended their previously announced production cuts into 2024 and Saudi Arabia volunteered to cut its own output by 1 million barrels a day in July.
But “what the world needs is more demand,” said Aslam. “Looking at the overinflation situation and two big monetary policy decisions that are due next week, we think that it is likely that the global economy may slow down further, and as a result, we could see some more weakness heading for oil prices.”
Oil rose Wednesday despite data from the Energy Information Administration that showed larger-than-expected inventory increases of 2.7 million barrels for gasoline and 5.1 million barrels for distillates last week.
But the seemingly unwelcome news was offset by refineries running at high capacity amid improving crack spreads — the differential between the cost of crude and the price of the products that can be refined from it.
“Make no mistake about it, gasoline up during the first week of summer driving season is not going to give the energy market the kind of boost that traders want to see, but the counterpunch” is that refineries operated at 95.8% of their operable capacity last week, said Robert Yawger, executive director for energy futures at Mizuho, in a note. That’s “going to make a lot of product, and it is unreasonable to expect the market to sop up all that gasoline and distillate.”
The gasoline crack spread rose 6.9% and the heating oil crack spread gained 2.7%, he said, with traders appearing to be “more impressed with the spike in the run rate, and the increase in demand, versus the big builds in products.”
Natural-gas futures, meanwhile, extended their early losses Thursday after the U.S. Energy Information Administration reported on Thursday that U.S. natural-gas supplies in storage rose by 104 billion cubic feet for the week ended June 2. Analysts called for a storage increase of 114 billion cubic feet on average, according to a survey conducted by S&P Global Commodity Insights.
The data, however, included revisions to figures tied to reclassifications of some natural gas in storage from working gas to base gas. Working gas is the volume of gas available in the market, while base gas is defined as the amount of natural gas that’s needed to maintain adequate reservoir pressures and deliverability rates through the supply withdrawal season.
The EIA’s reclassifications resulted in decreased working gas stocks of 14 bcf last week in the nonsalt South central region, so the implied flow for the week is an increase of 118 bcf to working gas stocks, the EIA said.
