Oil Prices Dip on Confirmation of Inventory Build
Crude oil prices opened weaker today following Wednesday’s release of U.S. oil inventory data that confirmed API’s estimate of a build. Regardless of the fact that the build, at 3.8 million barrels as estimated by the EIA, followed several weeks of draws, it pushed prices lower in the last trading day before the July 4th weekend. At the time of writing, Brent crude was trading at $68.62 per barrel and West Texas Intermediate was changing hands for $67.01 per barrel, both down from Wednesday’s close. The trend could be reversed before too long, however, after the Dallas Fed confirmed the expected slowdown in drilling activity in the shale patch. In its latest quarterly report, the Fed said industry executives pointed to declines in both oil and gas production during the second quarter of the year, with the oil production index falling to -8.9 and the natural gas production index to -4.5, which represents a sharp reversal from moderate growth earlier this year. The Dallas Fed also cited executives as saying they expected a lot less drilling going forward. Among the larger producers, with output of 10,000 bpd or more, 42% said they expected a significant decline in drilling activity, with many citing the Trump administration’s trade policies as a deterrent, and more specifically, the tariff push. “It’s hard to imagine how much worse policies and D.C. rhetoric could have been for US E&P companies,” one respondent to the survey said. “We were promised by the administration a better environment for producers, but were delivered a world that has benefited OPEC to the detriment of our domestic industry.” Meanwhile, a trade deal between the United States and Vietnam infused markets with a sense of certainty, according to Reuters, that could result in stronger oil demand, stimulating bullish sentiment among traders. The deal will see 20% tariffs imposed on Vietnamese exports to the U.S.
Standard Chartered: Oil Markets Can Easily Absorb Extra OPEC+ Barrels
Oil markets kicked off the new year in a downbeat mood, with Wall Street analysts almost unanimously predicting a huge oversupply in 2025 even if OPEC+ did not add a single barrel back into the market. Well, it’s six months on, and oil markets have continued to defy these bearish expectations. The eight OPEC+ countries that made additional voluntary cuts in 2023 are set to meet on July 6, with expectations that the ministers will continue the unwinding of the November 2023 tranche of cuts, increasing targets by 411 thousand barrels per day (kb/d) for the fourth successive month. Commodity analysts at Standard Chartered have also predicted a final 411kb/d increase will be announced at the August meeting, resulting in the full unwinding of the voluntary cuts that totalled about 2.2 million barrels per day (mb/d). Thankfully, the rapid unwinding of the cuts has proved to be a highly successful strategy, with oil markets having little trouble absorbing the extra barrels. Inventories remain very low, while the prompt market remains backwardated and with the previous market fears of historic surplus giving way to a general acceptance that fundamentals entered the year stronger than most traders believed with demand remaining robust. The latest EIA weekly data was bullish, with crude oil inventories falling 5.84 mb w/w to 415.11 mb, taking them 45.59 mb lower y/y and 51.39 mb below the five-year average. Indeed, crude inventories are currently just 5.16 mb above their five-year low, having declined by 28.05 mb (801kb/d) over the past five weeks alone while the deficit to the five-year has widened to the largest since June 2022. Distillates remain the tightest oil product group: distillate inventories fell counter-seasonally by 4.07 mb w/w to 105.33 mb, increasing the deficit below the five-year average by 4.44 mb to -26.3 mb. Implied gasoline demand rose 389 kb/d w/w to 9.68 mb/d, the highest weekly reading since Christmas 2021. The 30 June release of the EIA’s Petroleum Supply Monthly revised April gasoline demand higher by 30 kb/d to 8.91 mb/d, taking the y/y increase from 0.8% to 1.1%. Total April oil demand was revised 488 kb/d higher to 20.213 mb/d, good for a y/y increase of 0.6%. StanChart has predicted that oil markets will continue to absorb extra OPEC+ production easily in the short term, and has even forecast a global stock draw of 0.9 mb/d in the third quarter following a 0.2 mb/d build in the June quarter. According to the analysts, the tightening in Q3 will primarily be the result of a 1.4 mb/d q/q increase in demand while non-OPEC+ output is expected to remain fairly flat. However, StanChart has warned that the lack of compliance to set quotas by the likes of Kazakhstan could become a more significant issue when the seasonal demand strength starts abating in the fourth quarter of the current year or the first quarter of 2026. Still, the experts say OPEC+ may not need to curtail production in Q1 2026, with the projected stockbuild not likely to be any larger than normal while inventories will be starting from very low levels. However, the first line of cuts is likely to come from the overproducers if the situation does indeed warrant some production cuts. Meanwhile, EU natural gas inventories have continued to rise at a rapid clip, with the y/y deficit narrowing on 32 of the past 34 days while the deficit below the five-year average has narrowed on 25 of the past 32 days. According to Gas Infrastructure Europe (GIE) data, EU inventories clocked in at 67.98 billion cubic meters (bcm) on 29 June, 21.58 bcm lower y/y and 10.37 bcm below the five-year average. The w/w build was 2.70 bcm, 16.5% higher than the five-year average. The EU inventory builds are being driven by higher LNG flows. According to StanChart data based on European Network of Transmission System Operators for Gas (ENTSOG) daily data, LNG flows into the EU averaged 429 million cubic metres per day (mcm/d) over the past five months, considerably higher than 342 mcm/d average for last year’s corresponding period. EU gas demand remains subdued at 796 mcm/d, good for a y/y decline of 2.8%. European gas prices remain exposed to significant downside risk, with a potential path below EUR 30 per megawatt hour (MWh) thanks to weak demand, stronger-than-usual inventory builds, poor market technicals and reduced concerns about LNG supply disruptions due to the Middle East conflict.
Diesel days numbered? India eyes massive LNG truck expansion by 2040
India’s liquefied natural gas (LNG) truck population is projected to grow from around 700 trucks in FY24 to nearly 2,00,000 by 2040 under the Petroleum and Natural Gas Regulatory Board’s (PNGRB) Good-to-Go (GtG) scenario and to 5,00,000 in a high-growth Good-to-Best (GtB) scenario. In contrast, China has already crossed 8,00,000 LNG trucks with a network of 6,000 refuelling stations. According to the demand assessment study conducted by PNGRB, India is aiming to transition one-third of its long-haul trucking fleet to LNG over the next 15 years to reduce diesel consumption and lower carbon emissions in the freight sector. The current penetration of LNG in the trucking segment remains limited, with only 20 stations and 700 trucks operating as of FY24. The report notes that diesel-powered road freight accounts for nearly 65–70 per cent of India’s logistics share and contributes 35–40 per cent of road transport emissions. Based on stakeholder consultations and infrastructure outlook, LNG truck numbers may rise to 30,000 by 2030 in the GtG scenario and 50,000 in the GtB case. By 2040, this may rise further to 2,00,000 and 5,00,000, respectively,” the report said. The study estimates daily LNG consumption per truck at 131.4 scmd, assuming 320 km travel per day with average mileage of 3.2 km/kg. In contrast, China’s LNG trucking ecosystem is significantly larger, with over 8,00,000 trucks already deployed and around 6,000 LNG stations in operation. The PNGRB report highlights that China achieved this scale by creating a supportive ecosystem involving pricing support, dedicated manufacturing lines, and extensive fuelling infrastructure. Europe has about 80,000 LNG trucks and 525 stations, while the US fleet comprises 35,000 LNG trucks with 250 stations. India’s LNG push has started with the government’s mandate to open 50 LNG stations in the initial phase. Industry feedback suggests that expansion to 1,000 stations will be required to support wider adoption. The report also notes stakeholder suggestions for incentivising domestic LNG manufacturing, tax exemptions, waiver of road tolls for LNG vehicles, and allocation of domestic gas to stabilise fuel prices.
Pakistan looking to sell excess LNG amid supply glut curbing local gas output – document
Pakistan is exploring ways to sell excess liquefied natural gas (LNG) cargoes amid a gas supply glut that could cost domestic producers $378 million in annual losses, according to a presentation and a government official familiar with the matter. The country has at least three LNG cargoes in excess that it imported from top supplier Qatar and has no immediate use for, and is currently selling natural gas at steep discounts to local users, a second government official said. Power generation from gas-fired power plants, which has historically accounted for a lion’s share of LNG use in the country, has declined for three straight years ended 2024, with cheaper solar power use dramatically gaining at the expense of gas-fired generation, data from energy think-tank Ember showed. That has forced domestic producers of the fuel to curb production. Pakistan is currently exploring the possibility of transferring LNG cargoes to rented tankers for “offshore storage and onward sale,” state-owned oil and gas producer OGDCL said in a presentation to industry and government. “Excess LNG in the gas network has resulted in significant production operations impact for local exploration and production companies over last 18 months,” OGDCL said, adding that it had forced curtailment of domestic supply. The domestic industry could suffer $378 million in losses over the next 12 months at the current rate of curtailment, according to the presentation dated May 29 reviewed by Reuters. It is not immediately clear if Pakistan’s long-term LNG import contracts with Qatar Energy allows for a resale of cargoes. One of the government officials said the country was still exploring ways to do it. Qatar typically has a destination clause in long-term supply contracts with buyers that restrict where the cargoes can be sold. Qatar Energy did not immediately respond to a request seeking comment. Pakistan has already deferred five contracted LNG cargoes from Qatar without financial penalty, shifting delivery from 2025 to 2026, as the country grapples with surplus capacity. Pakistan’s petroleum minister Ali Pervaiz Malik declined to comment on the presentation, but said renegotiating contracts with Qatar was a “complex” process that could take at least a year, and a final decision on initiating it had yet to be made. “While the existing contract with Qatar allows Pakistan to decline vessels, doing so incurs penalties and other complications,” Malik told Reuters. The glut has stemmed from several gas-fired power plants, previously operating under must-run contracts, now being sidelined, Malik said. “It was expected that summer season will create extraordinary demand but the trend indicates the opposite,” OGDCL said in the presentation.