Analysts believe the exports from Libya could return to 800,000 bpd within just a few weeks and that was enough to push crude prices sharply lower.
Commerzbank said the stalemate over Iran's nuclear agreement, the lack of a production decline in Iraq and the rising exports in Libya would keep Brent prices in the $105-$110 barrel range. Brent has fallen from nearly $116 to $106 in just the last two weeks. There is strong support in the $104 range so that should be the floor.
The Iranian interim agreement could be extended another six months and that would remove the worry over a resumption of the sanctions and declining oil exports.
Iraq is fading from the headlines and oil production was not impacted by the ISIS insurgency. No support for oil prices there.
The Iraqi Kurds seized the Bai Hassan oil production facilities and the oilfields in Kirkuk according to the Iraqi oil minister. The two sites have production capacity of about 400,000 bpd. This should not hinder production and actually protects them from further ISIS attacks. It also puts the Kurds one step closer to forming their own state and having the money to beef up defenses.
The new problem is the terrorist attacks on Israeli and the Israeli attacks on Gaza in retaliation. While there is no oil involved directly an increase in violence could bring on additional Arab retaliation against Israel and escalation of the conflict. The Palestinian death toll is over 150 but militants from Hamas and the Islamic Jihad continue to fire rockets from Gaza into Israel.
In the worst possible outcome this could flare up into a regional battle and see some oil producing countries get involved. While nobody expects this there is always that possibility.
The Ukraine issue has not gone away. The July 11th attack that killed 23 soldiers and wounded 93 has rekindled the hostilities. Russia sent a convoy of more than 100 armored vehicles into the Ukraine on Saturday so there will be further clashes. That means more sanctions against Russia and eventually the U.S. and EU will pass meaningful sanctions on Russian oil exports. That is the quickest way to cause Russia financial pain. Of course it will drive up oil prices for the rest of the world.
Oil inventories declined -2.4 million barrels last week for the sixth decline out of the last eight weeks. This is normal for this time of year. U.S. production rose to 8.514 mbpd and another two decade high. Production is expected to reach 9.0 mbpd by the end of 2014. Imports were flat at 7.29 mbpd.
Gasoline inventories rose slightly by +600,000 barrels. Gasoline inventories have been relatively flat for the last seven weeks. Apparently demand and production are in perfect sync. Refinery utilization rose to the highest point for the year at 91.6%.
Gasoline demand declined -233,000 bpd in the week ended on July 4th. Since the 4th was on a Friday I suspect the majority of the driving was over the weekend and will be included in next week's report.
Distillate inventories increased by +200,000 barrels for the sixth weekly gain. Demand rose +188,000 bpd and production rose +72,000 bpd. Imports were basically flat with only a +9,000 bpd gain.
Crude inventories at Cushing rose slightly to 20.9 million and avoided that 20.0 mb operating threshold.
Refiner inputs rose to 16.25 mbpd and the high for the year. This is a proxy for overall demand and suggests demand is rising. This was the second consecutive weekly high for 2014.
In the graphic below green represents a recent high and yellow a recent low.
Natural gas inventory rose by +93 Bcf and slightly more than the 90 Bcf expected. Gas prices are plunging for no particular reason. With active gas rigs flat at 311 and gas in storage now 27% below the five year average you would expect gas prices to rise.
Summer temperatures have been moderate in most of the country and demand for electricity for cooling has not appeared. This moderate weather has allowed gas in storage to rise more than 1,000 Bcf in just the last ten weeks and that is the fastest gain in 11 years. If that were to continue for the next 11 weeks the gas in storage would be much closer to the five year average.
The market took a hit last week that was stronger than the recent trend of 2-3 day dips and a rebound. We did rebound on Friday but it was lackluster and on very low volume. I would watch the Russell 2000 and 1,150 for directional clues. That is the line in the sand we must not cross.
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