USO - Weak U.S. gasoline demand could strengthen case for OPEC+ to extend supply cuts
2024-05-31 18:50:05 ET
- Crude oil futures fell for the day and the week, ahead of the OPEC+ weekend meeting where the group is widely expected to keep production cuts in place after Q2.
- "Softening fundamentals have narrowed the group's decision to one main focus: how long to extend their voluntary production cuts of 2.2M bbl/day, not whether to extend them," CIBC Private Wealth US senior energy trader Rebecca Babin writes adding the market has largely priced in a three-month extension of the cuts and would " react negatively to anything less ."
- OPEC+ likely will be looking beyond Q3 fundamentals and "unlikely to find support to unwind cuts in near term," Rystad Energy senior VP Mukesh Sahdev told Dow Jones, noting OPEC's more bullish view on growth than those of the EIA and IEA, while "actual barrels flowing to market are likely higher than what is counted... it is not easy for OPEC+ to ignore this."
- In a twist ahead of the meeting, the Financial Times said Saudi Arabia had called some OPEC+ oil ministers to Riyadh ; an OPEC spokesperson said Sunday's meeting is still scheduled to happen online, raising the possibility some ministers would participate alongside Saudi Energy Minister Abdul-aziz bin Salman.
- Reuters reported Thursday that OPEC+ members are considering a deal that would extend some production cuts through the end of 2025.
- Front-month Nymex crude ( CL1:COM ) for July delivery ended the week -0.9% , including a 1.2% decline on Friday, to $76.99/bbl, and front-month July Brent crude ( CO1:COM ) closed the week -0.6% , including a 0.3% dip on Friday, to $81.62/bbl.
- Also, front-month July Nymex natural gas ( NG1:COM ) finished -6.7% this week, including a 0.6% gain on Friday, to $2.587/MMBtu.
- ETFs: ( NYSEARCA: USO ), ( BNO ), ( UCO ), ( SCO ), ( USL ), ( DBO ), ( DRIP ), ( GUSH ), ( NRGU ), ( USOI ), ( UNG ), ( BOIL ), ( KOLD ), ( UNL ), ( FCG )
- The U.S. gasoline market is showing signs of weakness at the start of summer driving season - when it usually picks up strongly - which analysts say clouds the picture for oil demand ahead of the OPEC+ meeting, according to Reuters.
- U.S. gasoline demand fell ~2% last week to 9.15M bbl/day, even as refiners ramped up to their highest run rate in nine months, leading to a surprise jump in gasoline inventories, which pushed gasoline futures to a three-month low on Thursday.
- The difference between gasoline futures and U.S. oil futures, a measure of refiners' margins on gasoline, also fell to a three-month low on Thursday; weaker refining margins could lead to run cuts at refineries, Citi analysts wrote on Friday.
- "Weak refined product markets could drive the entire complex lower, including for crude," Citi said.
- Analysts say rising oil inventories in recent months due to soft fuel demand already had strengthened the case for OPEC+ to extend production cuts at its meeting.
- The energy sector, as indicated by the Energy Select Sector SPDR ETF ( NYSEARCA: XLE ), finished the week +2% .