🛢️ This Week’s Oil Market Updates
WTI and Brent futures failed to notch another weekly gain this week after concerns about China’s economic recovery and sustained interest rates quelled demand optimism.Prices finished Friday higher with support from a weakening dollar and the EIA’s inventory report. WTI futures gained 1.1% to $81.25/barrel on the final day of the week. Brent futures rose 0.8% to $84.80/barrel. China’s slower-than-expected post-COVID recovery was further complicated this week after updates from the country’s property sector highlighted a string of defaults from debt-laden developers. China’s property sector accounts for roughly 25% of the country’s economic activity, and declining construction activity is adding downward pressure on diesel demand forecasts. Weak demand for China’s manufacturing exports has similarly weighed on distillate’s prospects.
In the US, stronger-than-expected economic data sparked concerns that the Fed would prolong or add to the current interest rate environment. On Wednesday, the Energy Information Administration (EIA) offered support for crude prices with its weekly inventory report. The EIA’s latest data showed crude inventories declined by 5.96 million barrels to 439.7 million barrels for the week ending August 11th, including an 837,000 barrel decline at the Cushing, Oklahoma delivery hub. The drop in crude stocks highlighted the impact of surging US exports over increasing production. Crude production for the week of August 11th reached 12.7 million bpd – the highest output since March 2020. Refinery utilization rates climbed by 0.9 percent to 94.7% for the same period. Refinery runs increased by 167,000 bpd to 16.75 million bpd – the highest figure since January 2020. Including WTI Midland in Dated Brent has boosted the overseas appetite for US exports, with crude outflows increasing by 2.2 million bpd on the week.
Other Oil Updates:
The dollar strengthened to two-month highs early this week but softened moderately Friday to support crude’s end-of-the-week recovery.
Asian refiners are navigating the consequences of declining Kuwaiti shipments, as the OPEC producer has rerouted ~20% of its exports to the country’s new Al Zour refinery. Kuwait’s crude exports fell by 1.61 million bpd (10%) YOY from January through July. Kuwait plans to cut exports by another 300,000 bpd for 2H23 as it scales up refinery runs at Al Zour.
On Wednesday, renewables developer-operator Invenergy announced a $1.5 billion deal to acquire American Electric Power’s (AEP’s) 1,365-megawatt renewables portfolio. Invenergy partnered with Blackstone and Canadian pension fund CDPQ to form IRG Acquisition Holdings (IRGAH), and the deal included one of the first applications of the Inflation Reduction Act’s tax credit transfers to secure financing. IRGAH sold credits to Bank of America through a production tax credit (PTC) transfer for $580 million.
☀️ New US Solar Panel Tariffs
On Friday, the US Commerce Department finalized plans to impose import duties on certain solar panel manufacturers when President Biden’s tariff waiver expires in June 2024. In December, a Commerce Department probe discovered that manufacturers frequently sidestepped tariffs on Chinese-made products by rerouting Chinese-made panels to other Southeast Asian countries for minor processing before exporting to the US. Roughly 80% of US solar panel supplies are sourced from Cambodian, Malaysian, Thai, and Vietnamese manufacturers. Companies can opt into a certification process that shows non-Chinese components in panels. Firms that violate the policy will face the full tariff rates employed on Chinese-made products.
Southern California is preparing for its first tropical storm since 1939. Hurricane Hilary weakened from a Category 4 to a Category 3 storm on Saturday, and forecasts show extensive rainfall will hit areas east of Los Angeles. Utility operator Southern California Edison expects the storm to impact large portions of its service area. Major regional refineries were operating normally Friday and expected to remain outside the storm’s direct path.