Momentum Wiped Out Again
A bullish DOE inventory report Wednesday helped energy futures find a temporary floor, only to see that momentum wiped out again by a wave of selling in equity markets overnight. Trade tensions continue to take credit for the swings across several asset classes, although the correlation between moves in US stick indices and energy futures has dropped to its lowest levels so far this year.
While inventory declines in crude oil and gasoline took the headlines, it may be the resilience of domestic demand that’s the biggest story helping prevent prices from continuing their slide. The DOE’s estimate for gasoline demand was the 4th highest on record last week, and the highest ever for a week in May, which suggests we should break new all-time records once we reach peak demand season this summer. In addition, days of supply (total inventory divided by daily demand) dropped below 23 days for gasoline, for the first time since the aftermath of Hurricane Harvey.
Refinery runs continue to lag behind year-ago levels, with a 7% drop in PADD 1 runs the most notable data point of this latest report. The west coast (PADD 5) only saw a small increase in run rates last week, which was a bit surprising given the sharp pullback in basis values this week that suggested supplies are healing quickly.
Today’s interesting read: How tensions with Iran have made old enemies new friends in the Middle East.