TOCOM Energy

Crude oil futures Friday were climbing higher, but having last week slumped below pre-war levels as a wave of bearish sentiment and fears over demand destruction swept through the market.

Middle East crude oil finished the week nearly 7% lower, broadly following the global selloff in oil markets. Neither OPEC's modest production hike nor Aramco's record OSPs did little to arrest the slide.
Dubai cash for October delivery was assessed at $93.8/b for 5 August on Singapore close, down $1.95/b from the previous session, while front-month October JPX Dubai were trading at equally 86.3$/b.
At the same time, ICE Brent futures were trading at $95/barrel, both at a level not seen since February of this year and before Russia invaded Ukraine. Prompt intermonth spreads for these crude futures rallied after several days of decline but still remain weak.

The OPEC+ alliance announced a modest 100,000 b/d rise in production quotas for September, in a slight gesture to US President Joe Biden, who pressed for more supplies to tackle high oil prices—but also a big nod to Russia and other members that sought a measured approach to protect their windfall earnings.
The core OPEC group pumped 28.98 million bpd of crude last month, a Reuters survey found, up by over 300,000 bpd from June's revised total but still 1.3 million bpd under target. The biggest increase in production, of 150,000 bpd, came from top exporter Saudi Arabia, while the Kingdom's September quota calls for a further increase of just 30,000 bpd. However, it’s assumed that OPEC+ crude production will grow 500,000 b/d from July to August and remain at that level through the end of the year given that many members have been struggling for months to hit their output targets.

OPEC+ also flagged the severely limited availability of excess capacity necessitates utilizing it with great caution in response to severe supply disruptions.
Prices were once briefly lifted Thursday after Saudi Aramco hiked differentials for its flagship Arab Light grade to a record of +$9.80/b for loading next month, compared to +$9.30/b in August and the previous record +$9.35/b in May. Although widely expected, the increase was seen as evidence that Saudi Arabia sees no difficulty in placing September barrels.

Recessionary fears have also been flagged in Europe, while China's post-Covid recovery has proved sluggish amid on and off restrictions. China's crude throughput likely fell in July, weighed on by maintenance at state-owned refineries and amid uneven oil product demand recovery and limited exports.
However, the selloff was largely sparked by the later EIA data that showed demand for gasoline in the US last week had fallen to the pandemic levels of 2020 levels due to high prices, gasoline refiner margins also fell to levels last seen before the war in Ukraine started, although investors will be eagerly awaiting to see if this was a blip in the data or a new normal, it also highlighted concerns over falling demand.
At the same time, GasBuddy which surveys transactions at 150,000 gas stations in the US saw a 2% weekly increase or 9.5 million barrels a day, the highest so far this year in US versus the EIA's 7.6% drop.

The discrepancy in the demand data could, however, be explained by forecourts cutting back on their forward purchases after wholesale prices tumbled by nearly a third over the past two months. Another a relatively reasonable guess is that the agency's gasoline supply data, which measures the amount of product left at major storage sites like refineries and bulk terminals, doesn't fully track how many gallons drivers are buying at the pump.

While gasoline demand did come in below expectations heading into the summer, the weekly data provided in the EIA report can be highly volatile from week to week and do not necessarily reflect demand trends. The EIA's monthly gasoline demand data is much more accurate，but investors will have to wait nearly two months later to find out.