The Crude Dilemma

Energy markets have continued to struggle since the near-term peak in early April as speculators reversed their bullish sentiment and macroeconomic data has been mixed. Market observers are concerned about a near-term peak in gasoline demand, which is reflected in the weekly EIA reports. The reports show a four-week average of 9.034 million barrels per day, compared to last year's 9.098 million barrels per day, indicating a slight decline and raising near-term concerns.

Inventory levels have also increased slightly over the last several weeks, complementing the rise in refining rates. Refining Capacity Utilization rates have finally surpassed the 90% level, which is typical for this time of year as the summer driving season has officially started. However, the market is focused on the fact that the increased product supply may not be fully absorbed by consumers.

This weekend, OPEC+ will be in focus as they meet to discuss their strategy for the remainder of the year and their production strategy for early 2025. The market expects OPEC+ to continue their production cuts through early 2025, but the biggest question is whether these cuts will be voluntary or mandated by the organization. The current voluntary cuts have not been as effective as initially believed, as smaller countries have exceeded their production quotas and there are whispers of frustration from these countries, who have seen the impact of production cuts on their economies.

If OPEC signals continued cuts, we may see a small boost in prices, but this could be overshadowed by data coming out of China and high-frequency data from the U.S.