Energy Markets Wrestle with Fundamentals

Energy prices struggle to provide a reliable short-term outlook as supply and demand dynamics, shaped by geopolitical shifts, continually reshape the energy landscape.

Crude Oil

WTI Prices Struggle on Unexpected Build-Up

• WTI crude oil futures edged slightly higher to $61.6 per barrel on Friday but closed the week in the red, marking their first weekly loss in three weeks. The decline was driven by growing expectations that OPEC+ will continue ramping up production.
• The group is expected to agree next week to increase output by another 411,000 barrels per day in July, with plans to fully phase out the 2.2 million bpd voluntary cuts by October.
• Additional downward pressure came from the latest EIA report, which showed an unexpected crude stock increase of 1.328 million barrels, defying forecasts of a 1.85 million barrel draw.
• Further weighing on crude, Moody’s downgrade of U.S. sovereign debt dampened the economic outlook for the world’s largest oil consumer.
• Slower industrial production and retail sales growth in China, the top oil importer, added to bearish sentiment.

Gasoline

Gasoline Futures Fall from Oversupply from Iran

• Gasoline futures in the U.S. fell to $2.13 per gallon after the EIA reported unexpected increases in crude oil and fuel inventories.
• Meanwhile, reports indicate that Iran is open to a sanctions-relief deal in exchange for nuclear program restrictions, with Saudi Arabia expressing support for U.S.-Iran negotiations. This raises the prospect of increased Iranian oil flows into global markets.
• AAA estimated a record-breaking 45.1 million Americans traveled at least 50 miles this Memorial Day weekend, with 39.4 million choosing to drive—an increase of one million from last year.

Natural Gas

Natural Gas Futures Remain Below $3.5 Mark

• U.S. natural gas futures hovered near $3.30/MMBtu, on track for a second consecutive weekly decline following a larger-than-expected storage build.
• The EIA reported an injection of 120 billion cubic feet for the week ending May 16, surpassing forecasts of 115 bcf and significantly exceeding the five-year average of 87 bcf.
• The increase reflects mild weather conditions that tempered both heating and cooling demand.
• Total gas in storage now stands at 2.375 trillion cubic feet—12.3% below year-ago levels but 3.9% above the five-year average.
• Meanwhile, LNG export volumes dipped to 15.1 bcfd in May, down from 16.0 bcfd in April, due to maintenance at Cameron LNG, Cheniere’s Corpus Christi terminal, and brief disruptions at Freeport LNG.
• Domestic production also slipped to 103.9 bcfd, down from April’s record 105.8 bcfd, impacted by pipeline maintenance.
• Looking ahead, expectations of stronger demand driven by rising summer temperatures in June could provide support for prices.