Urgent: The United States is pumping huge amounts of oil into the market, so what is waiting for oil and gold?
By Barani Krishnan
US driving season is almost over for all practical purposes. What will affect the oil after that?
The answer seems to be exports first and foremost - crude oil and US products. But who will benefit most from these exports? American oil industry? Or OPEC? How will all this end? It really depends on what kind of news you're after.
And if it comes to oil price speculators or critics of the Biden administration, the story is that Asia is buying a lot of cheap barrels of US crude because the administration is releasing daily supplies from the Strategic Petroleum Reserve.
According to this account, the high demand for US crude oil from Asia is due to the discount of $5 a barrel or more against London Brent, the global benchmark. It asserts that such a discount would not exist without the release of SPR crude.
This claim is unacceptable and close to disbelief. Since WTI came under control in 2010 to become the global benchmark, Brent has always held a premium against US crude - although the two were on par for a very brief time, with Brent even being at a discount. Overall, there is a common $5 difference between the two oils (it hit $7 this week). But fixing it completely on the issuance of the Strategic Petroleum Reserve is meaningless.
The revolutionary news continues that with the Biden administration releasing a record amount of oil from the Strategic Petroleum Reserve, the Saudis who run OPEC, or the Organization of the Petroleum Exporting Countries, want the United States to further deplete its stockpile of emergency oil so that they can do so with greater control over global oil prices. Once the US balance reaches the "real emergency" level.
Rather than signaling to the market that they will succumb to Biden's desire to increase production, the Saudis are laying the groundwork for future production cuts because they expect the global oil supply situation to turn from deficit to surplus, giving them the justification for future oil production cuts. OPEC expects it could reduce the amount of crude it will need to supply in the third quarter by 1.24 million barrels per day, to 28.27 million.
And the rest of the news continues like this: The Saudis, with the help of their preferred partner Russia (read: Vladimir Putin) within the broader OPEC+ alliance, will have greater control over energy and food prices, and inflation in general. It would also make the United States more vulnerable from an economic point of view as well as from a national security point of view.
Also, SPR releases will expire in October, and when winter demand for oil rises, the US will be tighter.
US oil numbers are also not comfortable yet, with broad crude supply 5% below the five-year average. The SPR was at its lowest level in 1985; Distillate stocks stand at 24% below the five-year average and gasoline supplies stand at about 6% below the five-year average.
Is it good so far? Now, let's talk about the decline.
As we said at the beginning, the US driving season is almost over. Fuel demand is expected to see a steady decline from here as American parents send their children back to school and university over the next two weeks to meet the new school year that begins in September. Also, road trips for pure pleasure became the last thing on their minds at this time.
While US gasoline stocks saw an astonishing five million barrel drop last week. But weekly crude stocks have risen by about 10 million over the past two weeks.
US crude exports hit a seven-month low last week, falling to 2.11 million barrels per day - the lowest level not seen since 1.96 million barrels were shipped during the week ending January 7.
To balance somewhat off the impact of the decline in crude oil exports, US gasoline shipments rose to 1.13 million barrels per day last week, the most since December 2018.
“With weekly oil balances delivering one downturn after another lately, not thanks to questionable demand at home, the only thing the market depends on is crude oil exports, which have averaged steadily Between 3 million and 4 million barrels per week for months now... "So the longs in the market must be very anxious if we start to get more meager crude exports like last week."
Kilduff said the decline in crude oil exports last week "may have been an aberration," noting that the sudden rise in gasoline exports was useful as a relief, "although there is no guarantee that it will happen this way week after week."
While the bulls made a lot of 180 million barrels - or 1 million barrels a day - aiming to dump the SPR every day between May and October, US oil production itself is rising.
The EIA said in its July productivity report that US crude production in the Permian Basin of Texas and New Mexico, the largest shale oil basin, is set to rise by a cumulative 78,000 barrels per day to a record 5.445 million barrels per day on August 18.
The EIA said producers drilled 938 wells, the most since March 2020, and completed 964, the most since October 2021, in the largest rock basins in June.
That reduced total drilled but incomplete (DUC) wells by 26 to 4,245, the lowest since at least December 2013, according to EIA data going back that far. The number of available drilled but incomplete wells has also decreased for 24 consecutive months.
Domestic gasoline demand has been choppy in the US in recent weeks. While the nearly five million barrel drawdown in US gasoline stocks last week would have pleased long deals in the market, there have been several million barrels as well in previous weeks, as record high pump prices of more than $5 a gallon have ripped apart the demand.
While the average pump price of gasoline fell to $3.99 a gallon by Thursday — the first time it had fallen below $4 in months — U.S. crude itself could return to $100 a barrel after last week's sell-off that brought it below $90. dollars.
Gold's gains came after the dollar - which is against the yellow metal - weakened this week on the back of weak US inflation data.
The Consumer Price Index, one of the most widely followed measures of inflation globally, also showed zero growth in the US for the month of July after rising 1.3% in June. Over the year to last month, the so-called CPI also slowed, expanding 8.5% from 9.1% previously.
Meanwhile, the US Producer Price Index fell 0.5% in July, fueling the issue of inflation falling back from four-decade highs.
The dollar has fallen this week despite several Fed officials saying the slowdown in inflation in July won't be enough to make it easy with rate hikes.
Gold: Price Predictions
SKCharting's Dixit said that gold needs to break above the previous month's high at $1,814.36 to consolidate momentum towards the confluence of the 50-week moving average of $1,827 and the 100-week simple moving average of $1,828
It should also follow the 78.6% Fibonacci level at $1,835 and the weekly Bollinger Bands average of $1,838, added Dixit, who makes his calls based on the spot price of gold.
Dixit said that the daily reading of the 93/86 stochastic makes the renewed positive overlap above the overbought zone for spot gold, while the weekly stochastic reading 59/44 continues to be strongly positive.
“Swing traders will look to buy dips towards the $1,785-$1.775 support area, targeting $1,828-$1,838.”
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