The US Added Almost 9 Million Barrels Of Crude Oil Inventory Last Week
The US added almost 9 million barrels of crude oil inventory last week as we continue to pull from our Strategic Petroleum Reserve in an effort to lower prices. Slowing oil exports and a bump in imports is helping the nation replenish its energy stockpiles, however the total oil on-hand still remains below the 5-year seasonal average as the US, along with the rest of the world, continues to cope with the vast reduction of energy exports from Russia. We also added diesel and gasoline stores last week, according to the weekly DOE report released yesterday. Gasoline inventories added 333 thousand barrels last week while distillates increased by a meager 95,000 barrels.
Queen Elizabeth II ended her 70 year reign of the United Kingdom yesterday, passing away at the age of 96. While her death and shakeup of the monarchy isn’t expected to make any drastic impacts to the energy landscape, she died shortly after appointing a new prime minister whose first major action was passing a cap on electricity bills for the United Kingdom. This legislative action highlights the dire situation Europe is in concerning their projected energy costs for this winter.
While Hurricane Earl continues to churn out to sea, “only” threatening the US East Coast with dangerous rip currents, the rest of the Atlantic basin has calmed down significantly, for now. The handful of systems coming off the African coast are given a low probability (20%-30%) of organizing into a storm over the next five days. Tropical Storm Kay was downgraded from Hurricane status yesterday after making landfall in Baja Mexico. While the scope of her potential impact on the US mainland has significantly shrunk, the storm could still cause flash flooding in the Southern California area but will likely stay east of the major population centers of San Diego and Los Angeles.
Oil prices are set up for a drop on the week, however slightly, but price action is continuing to follow the bearish trend it started since mid-June. The gasoline chart is testing the support of its 100-week moving average in a bid to keep dropping in the short term. If the support doesn’t hold, not much stands in the way to keep the prompt month contract from challenging the $2 mark. Diesel, on the other hand, looks to be content in its sideways pattern, refusing to come back to “reality” since its overseas demand remains elevated. The proportion of global diesel demand vs gasoline is much higher than it is in the States and its use a backup fuel for heating and electricity generation has buoyed prices through this three-month selloff.
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View AllRefined Products Are Moving Lower For A 2nd Day After Coming Under Heavy Selling Pressure In Wednesday’s Session
Refined products are moving lower for a 2nd day after coming under heavy selling pressure in Wednesday’s session. Rapidly increasing refinery runs and sluggish diesel demand both seemed to weigh heavily on product prices, while crude oil is still benefitting from the disruption of exports from Iraq. Prices remain range-bound, so expect more choppy back and forth action in the weeks ahead.
US oil inventories saw a large decline last week, despite another 13-million barrels of oil being found in the weekly adjustment figure, as imports dropped to a 2-year low, and refinery runs cranked up in most regions as many facilities return from spring maintenance.
The refining utilization percentage jumped to its highest level of the year but remains overstated since the new 250,000 barrels/day of output from Exxon’s Beaumont facility still isn’t being counted in the official capacity figures. If you’re shocked that the government report could have such a glaring omission, then you haven’t been paying attention to the Crude Adjustment figure this year, and the artificially inflated petroleum demand estimates that have come with it.
Speaking of which, we’re now just a couple of months away from WTI Midland crude oil being included in the Dated Brent index, and given the uncertainty in the US over what should be classified as oil vs condensate, expect some confusion once those barrels start being included in the international benchmark as well.
Diesel demand continues to hover near the lowest levels we’ve seen for the first quarter in the past 20+ years, dropping sharply again last week after 2 straight weeks of increases had some markets hoping that the worst was behind us. Now that we’re moving out of the heating season, we’ll soon get more clarity on how on road and industrial demand is holding up on its own in the weekly figures that have been heavily influenced by the winter that wasn’t across large parts of the country.
Speaking of which, the EIA offered another mea culpa of sorts Wednesday by comparing its October Winter Fuels outlook to the current reality, which shows a huge reduction in heating demand vs expectations just 6-months ago.
It’s not just domestic consumption of diesel that’s under pressure, exports have fallen below their 5-year average as buyers in South America are buying more Russian barrels, and European nations are getting more from new facilities in the Middle East.
Take a look at the spike in PADD 5 gasoline imports last week to get a feel for how the region may soon be forced to adjust to rapidly increasing refining capacity in Asia, while domestic facilities come under pressure.
Crude Oil Prices Are Trying To Lead Another Rally In Energy Futures This Morning
Crude oil prices are trying to lead another rally in energy futures this morning, while ULSD prices are resisting the pull higher. Stocks are pointed higher in the early going as no news is seen as good news in the banking crisis.
WTI prices have rallied by $10/barrel in the past 7 trading days, even with a $5 pullback last Thursday and Friday. The recovery puts WTI back in the top half of its March trading range but there’s still another $7 to go before the highs of the month are threatened.
Yesterday’s API report seems to be aiding the continued strength in crude, with a 6 million barrel inventory decline estimated by the industry group last week. That report also showed a decline of 5.9 million barrels of gasoline which is consistent with the spring pattern of drawdowns as we move through the RVP transition, while distillates saw a build of 550k barrels. The DOE’s weekly report is due out at its normal time this morning.
Diesel prices seems to be reacting both to the small build in inventories – which is yet another data point of the weak demand so far this year for distillates – and on the back of crumbling natural gas prices that settled at their lowest levels in 2.5 years yesterday and fell below $2/million BTU this morning.
While diesel futures are soft, rack markets across the Southwestern US remain unusually tight, with spreads vs spot markets approaching $1/gallon in several cases as local refiners go through maintenance and pipeline capacity for resupply remains limited. The tightest supply in the region however remains the Phoenix CBG boutique gasoline grade which is going for $1.20/gallon over spots as several of the few refineries that can make that product are having to perform maintenance at the same time.
French refinery strikes continue for a 4th week and are estimated to be keeping close to 1 million barrels/day of fuel production offline, which is roughly 90% of French capacity and almost 1% of total global capacity. That disruption is having numerous ripple effects on crude oil markets in the Atlantic basin, while the impact on refined product supplies and prices remains much more contained than it was when this happened just 5 months ago.
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