According to data released yesterday by the EIA, US crude inventories fell 7.5 million barrels to 531.7 million barrels for the week ended July 10, outpacing the 2.1 million-barrel drop expected by analysts and narrowing the surplus to the five-year average to 16.6%. Furthermore, gasoline stocks fell 3.1 million barrels over the same period to 248.5 million barrels, while distillate fuel oil stocks fell 453,000 barrels to 176.8 million barrels. Total product supplied for distillate fuel oil, a proxy for demand, jumped 22% to 3.69 million b/d in the week, and was 3.6% stronger than in the same period a year earlier, marking the first time demand has exceeded last year’s levels since the beginning of April.
On the supply side, OPEC+ Joint Ministerial Monitoring Committee agreed on July 15 to taper production cuts from the current 9.7 million b/d to 7.7 million b/d from August. The main motivation behind this decision was confidence about recovering global demand, aided by seasonal consumption in many OPEC countries in the Middle East where peak power generation for air conditioning is largely fuelled by oil. As countries that exceeded their quotas in May and June by a combined 840,000 b/d have agreed to make extra compensation cuts in the third quarter, the total addition of supply to the market would be of about 1.15 million b/d, or 43% less than the 2 million b/d headline figure.
According to forecasts from the IEA and from energy research firms Rystad Energy and Marketedge Co., Brent prices are bound to hover around $40/bl as more supply from OPEC+ and the US will likely be absorbed by recovering demand, and rising tensions between China and the United States may weigh on market sentiment.
On another note, China’s GDP expanded 3.2% year on year in Q2, and rebounded from a sharp 6.8% contraction in Q1, official data released July 16 showed. However, such expansion has been fuelled by a 4.8% year-on-year growth in China’s industrial production, while retail sales were down 1.8%. As COVID-19 is likely to continue weighing on consumer demand regardless of the fiscal stimulus provided, a gradual pickup would occur only once consumers’ confidence will be restored by the elimination of the virus.