By: Harry Altham, Energy Analyst, Market Analysis EMEA & Asia
Oil is trading a touch lower this morning, after a strong evening session yesterday in the wake of the DOE report. Brent bounced sharply off the afternoon low of $121, as markets digested surging propane and finished motor gasoline products supplied, despite a 2M bbl rise in crude oil inventories. Gasoline products supplied reached 9.2M bbd last week – the first time it has reached the IEA’s predicted average daily consumption level for this summer’s driving season. Another sign of demand strength came from refinery utilisation rates, which reached 94.2% across the United States.; this is the strongest it has been since the start of the pandemic. Meanwhile, news of Venezuela’s return to global oil markets, in the form of 1M bbl of exports to Spain and Italy, was insufficient to allay fears of market tightness. The country produced just 680k bbd in May and it is thought that years of underinvestment in the wake of U.S. sanctions will make it difficult for Venezuela to increase output quickly, despite resources and expertise being channelled from both Iran and China.
A major fire at the Freeport LNG terminal has seen European natural gas prices surge by as much as €13/MWh to touch highs of €92/MWh; its highest price level in June. The facility is expected to be shut for around three weeks, which is a major blow to Europe as it seeks to ensure its stockpiles are 90% full before its 1st November deadline. The Freeport LNG Terminal in Houston is the source of around 19% of Europe’s total LNG imports (around 2.2M Mt), and a three-week outage will slow Europe’s gas replenishment plan. Stockpiles are currently 50% full versus a five-year average of 52%; the deficit (from ten-year seasonally adjusted lows in December) has been narrowing in large part due to LNG imports from the United States. We expect the rate of replenishment to slow to typical rates, which will be aided by a milder outlook across much of Europe in the coming weeks.
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