Refined Product Futures Drift Lower As Markets Consider IEA And OPEC Reports

Market TalkFri, Apr 14, 2023
Refined Product Futures Drift Lower As Markets Consider IEA And OPEC Reports

Energy prices are limping into the weekend with crude and refined products both bouncing back and forth across the break-even line overnight after seeing some modest selling in Thursday’s session.

Conflicting views on what’s to come from OPEC and the IEA the past two days are adding to the choppiness in the market that sees diesel prices stuck in a tight sideways range, while gasoline prices have stalled out after touching fresh 6-month highs earlier in the week.

OPEC held its outlook for global demand and supply growth in its monthly oil market report, estimating consumption will increase by 2.5 million barrels/day this year while supply will increase by 1.9 million. The report did cite a contraction in refined product balances in the Atlantic basin, thanks in part to the French refinery strikes, and expects demand for distillates to continue increasing as we move through the 2nd quarter. The cartel’s oil output dropped by 86,000 barrels/day last month, with declines in Angola, Iraq and Nigeria offsetting an increase in Saudi production.

The IEA’s monthly oil market report released this morning had a much more bullish tone, suggesting that world oil demand will increase by 2 million barrels/day, while supply will decline due to OPEC’s announced cuts.  The IEA expects global refinery runs to ramp up substantially the rest of 2023 but will still remain below pre-COVID levels. The EIA’s note ends with a bit of a dire warning: Our oil market balances were already set to tighten in the second half of 2023, with the potential for a substantial supply deficit to emerge. The latest cuts risk exacerbating those strains, pushing both crude and product prices higher. Consumers currently under siege from inflation will suffer even more from higher prices, especially in emerging and developing economies.

How quickly things have changed:  A Reuters note this morning suggests that Asian refiners will be reducing diesel output due to a sudden glut after nearly a year of shortages as the warm winter took away much of the demand that had many fearing severe price spikes this year.  Russia’s push to send products east that used to go West is also factoring into this big change in the Pacific basin and is starting to impact US refiners that are seeing less buying from countries like Brazil.

The first official forecasts for the 2023 hurricane season came in yesterday, fittingly on the same day that several south Florida fuel terminals were forced to close due to flash flooding.   The good news is that the experts predict a below-average hurricane season this year, the bad news is that it still just takes 1 to make a mess out of the supply network.

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Refined Product Futures Drift Lower As Markets Consider IEA And OPEC Reports