Oil trades higher on EU travel plans & earnings blast

An energy earnings blitz strengthens oil prices while the EU prepares for more summer travel. Natural gas is buoyed by higher LNG demand.

Oil trading

Oil started the week on the front foot, with WTI trading above $64 and Brent back over $67, rising to $65 and $68 respectively.

One of the big drivers behind this latest price rally was the EU’s decision to ease restrictions to inbound non-essential travel to the bloc. Proposals suggest travellers could entire the EU, providing they have been vaccinated with an EU-approved vaccine at least two weeks before arrival.

An “emergency brake” mechanism could be put in place, should more infectious variants pop up, allowing countries to individually limit travel.

In terms of oil markets, the decision is bullish. Travel – especially plane travel – is poised to increase across Europe, signposting higher fuel demand throughout the bloc in the second half of the year.

Oil prices have also reacted strongly to a rare blowout season for energy firms on Wall Street. First quarter earnings for majors and independents have beaten analyst estimates. 82% of reporting oil companies have beaten revenue expectations too.

The energy sector as a whole appears to be outperforming every other sector by a massive margin when it comes to earning expectations. Earnings forecasts are being beaten by a margin of 335% across energy stocks.

Rising oil prices throughout 2021, coupled with improved demand in key crude consumers like China and the US, is helping fill oil firms’ coffers. The rise in earnings and revenues also indicates that OPEC+’s optimistic demand recovery outlook is possibly accurate too.

OPEC+ is sticking with its plan to gradually improve oil output across 2021.

Covid-19 cases in India, the world’s third-largest crude importer, continue to spiral. As a result of the pandemic, Indian oil demand has fallen to a 20-year low. OPEC+ sourced imports have fallen 12% y-o-y, partly driven by Covid, but also by a general diversification of supply by Indian importers.

That may cause some concern for oil exporters and traders, but gains made in other areas of the market and geographies may be helping soothe trader worries regarding India.

Looking to US oil inventories, the latest EIA report for week ending April 23rd shows US commercial inventories rising by 0.1 million barrels from the previous week. At 493.1 million barrels, U.S. crude oil inventories are at the five year average for this time of year.

Total motor gasoline inventories increased by 0.1 million barrels last week and are about 3% below the five year average for this time of year.

Total petroleum products supplied over the last four-week period averaged 19.7 million barrels a day, up by 35.5% from the same period last year. Over the past four weeks, motor gasoline product supplied averaged 8.9 million barrels a day, up by 67.5% from the same period last year.

Natural gas trading

Natural gas demand is starting to slip throughout the US. Warmer weather systems are on their way, feeding into less commercial and residential heating gas use. Total US consumption of natural gas fell by 5.9% compared with the previous report week, according to data from the EIA in its storage report dated week ending April 23rd.

Residential and commercial consumption declined by 17.7% to 18 Bcf per day from 21.9 Bcf per day last week, largely caused by rising temperatures in the mainland US.

LNG may prove the saving grace here for natural gas prices. Undersupplied global networks, caused by late-season cold in Europe and Asia, will need replenishing, which is playing into exporters’ hands. Liquid natural gas demand should remain high in the summer as a result, helping to offset losses in commercial and residential use.

In the US, LNG feed gas volumes remain at near-record highs, totalling 11 Bcf on Monday 3rd May.

US domestic supplies of natural gas rose by 15 Bcf according to the EIA natural gas storage report. Total stocks now stand at 1.898 trillion cubic feet: down 302 Bcf from a year ago and 40 Bcf below the five-year average.