First Look - Oil trades modestly lower as IEA outlook counters Middle East tensions

• Oil is trading lower after five-day rally
  • Over the past several days, crude prices have recovered from multi-month lows amid continued tensions in the Middle East, with Iran expected to attack Israel
  • Time spreads have been signaling increased strength, with Brent prompt spreads widening
  • Furthermore, WTI prompt spread (September-October) is at its strongest backwardation since October 2023, indicating physical strength in the near-term
  • Additionally, July's producer-price index indicated a slight slowdown in factory-gate inflation from June, reinforcing speculation of a Fed interest rate cut in September
• IEA data shows oil market could flip to surplus (BBG)
  • If OPEC follows through with its plan to increase production next quarter, markets could flip from a deficit to a surplus, according to data from the IEA
  • Meanwhile, demand has been weak, with Chinese consumption falling for a third consecutive month in June
  • OPEC, led by Saudi Arabia, is planning to bring 543 MBbl/d back during the fourth quarter of 2024 but has said this plan could be paused or reversed depending on market conditions
  • Traders and analysts have been divided on whether OPEC will follow through with its plan, based on surveys by Bloomberg

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Interest Rate Charts and Tables

• Gas trades modestly higher, balancing bullish supply/demand signals from the August rally against potential hurricane risks and high storage levels
  • Coming off five straight days of gains, prompt gas was 1.5c higher to $2.204/MMBtu (As of 7:56 AM)
  • Winter ‘24/’25 strip is up 1c to $3.250 and the Summer ’25 strip is up 1.2c to $3.202
  • NWS data indicated Tropical Storm Ernesto could strengthen into a hurricane as it moved north of Puerto Rico, though it was not projected to hit the U.S. mainland (NGI)
    • August's LNG demand recovery, driven by steady demand in Asia and Europe, is supportive, with Europe's limited gas storage capacity relative to winter demand adding upward pressure on US gas prices
  • Today’s European Ensemble shows limited changes in weather forecast as Lower 48 temps remain near the 10-year average, with a rangebound pattern expected through late August (Criterion)
• Texas ERCOT coal power falls in July (Argus)
  • Coal-fired power generation in ERCOT dropped to 6 mn MWh in July, down from 6.8 mn MWh a year earlier, marking the sixth consecutive month of decline
  • Overall power generation in ERCOT decreased by 5.5% to 44.6 mn MWh due to power outages caused by Hurricane Beryl, which left over 2 mn people without power
  • Solar power generation increased by 30% to 5.2 mn MWh, making up 12% of ERCOT's fuel mix, reflecting a significant buildout of solar capacity in Texas
  • Gas-fired generation fell by 8% despite lower natural gas prices, dropping to 21.9 mn MWh and comprising 49% of ERCOT's fuel mix, down from 50% a year earlier