Friday June 3, 2016
A day replete with macro-oil news ended with results similar to those of previous days this week (i.e. relatively unchanged at settle). OPEC held its 169th ordinary meeting on Thursday, and while the cartel made no official pronouncement on output changes, the comments afterward might be viewed as moderately bullish:
- The Saudi Arabian Oil Minister (new in his post) offered fairly conciliatory rhetoric about its relationship with other OPEC price hawks (Iran). The Saudis are generally thought to be supportive of an output ceiling, but only if all members, like Iran, participate.
- Iran, on the other hand, has vehemently stated it will not trim output.
- These opposing views have apparently caused a little internal strife in the cartel (two biggest brothers in the family), but yesterday’s public comments seemed to indicate a thawing of such angst.
Thursday also saw the release of the weekly Department of Energy (DOE) inventory summary, which yielded moderately bullish numbers as well. At the end of the day, however, WTI has not been able to settle above $50 (yet), but that failure has not signified an abrupt round of profit taking selling (yet).
July WTI settled on Thursday at $49.17, up 16-cents on the day (yet another $49-handle settle, the sixth straight day with that front price). Prices slid early in the day, as the market anticipated no action by OPEC. After bottoming out near $48 (down a dollar), the market began to move higher. Then coinciding with the end of the OPEC meeting AND the DOE release, it ramped higher heading into the noon hour.
The results of this week’s DOE summary were as follows:
- Crude Oil – draw of 1.4 MMbbls (versus expected draw of 2.5 MMbbls)
- Gasoline – draw of 1.5 MMbbls (versus expected draw of 0.2 MMbbls)
- Distillate – draw of 1.3 MMbbls (versus expected draw of 0.9 MMbbls)
Though the crude oil draw was less than forecasted, the product draws caught the market’s attention. Gasoline demand increased again, and this was from data before the long Memorial Day weekend. It is expected those gas demand figures will continue higher through the summer. For a more detailed view of the DOE data, please read below.
WTI recouped the morning losses by noontime, and then treaded water for the balance of the day. The extended failure to break above the psychological and technical $50 barrier must give the bulls room to pause. It is hard, however, to really think of prices moving down quickly when oil demand is increasing and there are still large supply problems. Friday morning will give yet another piece of economic data to stir the pot, with the May U.S. jobs report providing another inkling on future demand prospects.
July RBOB and Heating Oil each settled moderately higher on Thursday (up two cents and one cent, respectively), largely due to the rather bullish top-line DOE numbers. Nothing new to report on the cash side for gasoline, as Midwest and Gulf Coast differentials remain quite strong.
- Net inputs of crude though still at the top end of the historical five-year range, has declined for the second week in a row.
- PADD III (Gulf Coast) again lead the decline in crude processing for the U.S. as a whole.
- Distillate production continues to follow the historical average. Typically the level remains within this 500 mbpd range until the end of June into July.
- Production of gasoline ticked up for the week, now resting barely below the 10 million barrels per day level.
- Commercial stocks of crude have highlighted the fallacy of putting too much faith in the weekly data points. Why if supply (imports) of crude oil increased and the demand (refinery throughput) decreased did the total inventory level decline?
- Stocks of distillate fuels draws as anticipated. This typically tapers off to a flat level for June before increasing with the production bump of July.
- PADD I C (Southeast) saw a significant draw week-over-week, falling back into the historical range and approaching last years level.
- The gasoline situation in PADD II continues to draw barrels of gasoline north from the gulf refineries which means less barrels heading east, hence the larger PADD I draw.
- Imports of gasoline are up substantially, as currently 94% of gasoline imports are into PADD I. This is helping offset the barrels typically sourced from the Gulf (imports are up 36% year-on-year).
Published by PAPCO, Inc. (PAPCO)
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