Energy Report: Debatable

The best way to explain the market action in the energy complex is to compare it to last night's Presidential debate—kind of a mess with a lot of data that does not seem to match the current reality. Market action, to say the least, has been lousy and even very supportive data from the American Petroleum Institute (API) seems to inspire this market that seems to be fixated on another potential wave of Covid-19 and an increase in Libyan crude oil exports. Forget about reports of tightening crude supply in the U.S. and Japan overnight, the market has denigrated into kind of a brawl that made last night's debate look almost dignified.

The API reported that the U.S. crude supply fell by 831,000 barrel despite a 1.610 barrel increase in Cushing, Oklahoma. The surprise draws in crude, if confirmed, should lend credence to the threat for Saudi Arabia that the global oil market is much tighter than people think. The mood is still very negative as we are deep in the maintenance season and fears about COVID.

Another surprise was the significant 3.42 million barrel drop in distillate supply. The distillate is the most gluttonous part of the sector, and a draw is a good sign that the market is finding a way to work down some of those supplies.

Gasoline supplies did rise by 1.623 million barrels, and they need to because those supplies are just about 1% above average for this time of year. Still, the US has been more dependent on European gasoline imports that fell to a five-week low. There is talk about a surge in gasoline imports from Asia, and to be honest, we need it. Japan's inventories of oil are also down and lower than expected. JODI Data showed that the Japanese crude oil stocks level in June was revised downward by 9.87 MBBL, and its July figure rose month-on-month by 7.13 MBBL to 385.31 MBBL.

Yet the market is worried about how they will absorb oil from a return of Libya's oil production. Libya's Sarir oilfield has restarted production at the Sarir oil field, producing more than 300,000 barrels per day (bpd) last year before the shutdown. Libya could add about a million barrels to global production in short order.

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