The Energy Select Sector SPDR® Fund ETF (XLE), USOCarl Surran,
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- Crude oil futures fell on Friday but ended the week higher, aided by indications of stronger U.S. demand and a rising perception of risk from a wider Middle East conflict that could endanger oil flows from the region.
- Exchanges of fire are rising between Israel and Hezbollah over the Lebanon border, along with increasingly hostile rhetoric, with Hezbollah threatening that nowhere in Israel would be safe and that the conflict could even involve Cyprus.
- Attacks by Houthi rebels continued in the Red Sea this week, and drone from Ukraine struck four oil refineries and other military targets in Russia.
- The weekly report on U.S. inventories also provided support with an unexpected drawdown in gasoline stocks as demand rose to its highest level this year.
- While four-week average gasoline demand is still down slightly YTD, it shows “drivers that have been reluctant to get on the road [have] started to venture out,” Price Futures Group’s Phil Flynn said.
- But while the overall EIA data suggests a tightening U.S. oil market, “over the near term, we think China’s oil demand growth disappointing market expectations is the key downside risk to consider,” Commonwealth Bank of Australia analyst Vivek Dhar said.
- Front-month Nymex crude oil (CL1:COM) for August delivery settled +3.4% this week to $80.73/bbl, and front-month August Brent crude (CO1:COM) closed +3.2% for the week to $85.24/bbl, down 0.7% and 0.6% on Friday, respectively.
- Despite the day’s drop in crude prices, U.S. July gasoline futures (XB1:COM) rose for a fourth straight day, rallying 4.8% this week to a one-month high $2.51/gal.
- U.S. natural gas posted a second straight weekly loss, with the front-month July contract (NG1:COM) settling -6.1% for the week at $2.71/MMBtu after falling 1.3% on Friday.
- ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (NRGU), (USOI), (UNG), (BOIL), (KOLD), (UNL), (FCG), (UGA), (CRAK)
- In a new analysis this week, Goldman Sachs forecasts production growth in the maturing Permian Basin likely will gradually slow down from an exceptionally strong 520K bbl/day in 2023 to a still robust 270K bbl/day in 2026.
- Goldman highlights two reasons why Permian growth will continue to slow down until production peaks later this decade: Geological constraints will continue to weigh on growth in initial production of new growing wells, limiting the basin’s longer-run production potential, and the bank expects the Permian rig count will move roughly sideways this year, but edge down below 300 by the end of 2026 as U.S. producers remain capital disciplined.
- But Goldman believes Permian growth will remain robust through 2026, as efficiency gains shift the mix to newer and more productive wells, and its 2024-25 WTI forecast of $76-$79/bbl is modestly above its estimated $74/bbl Permian breakeven price.
- The energy sector, represented by the Energy Select Sector SPDR Fund (NYSEARCA:XLE), was this week’s second strongest performer, +1.9%.