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A Midwest Shift in Gas that Could Tighten Southeast Supply

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Daily Settlement Prices

The oil complex ended a relatively quiet week on a relatively quiet note, as front month prices for each of the major product categories settled near unchanged, and market participants took few risks ahead of the long holiday weekend. July WTI did manage to post a gain for the week, and even traded briefly above $50 at one point, but Friday’s activity was more about book squaring than price driving.

OPEC is scheduled to meet on Thursday, though the industry does not expect the cartel to announce any meaningful changes. Saudi Arabia does have a new oil minister, and the market will be interested in hearing his (new) views on OPEC policy. Prices have risen by over 10-dollars per barrel since the special Doha meeting in April, and OPEC is likely content on how market forces are influencing the flat price of oil.

July WTI was a little weak early on Friday, though not substantially lower, and did manage to rally late in the day (following RBOB). The contract ultimately settled at $49.33 (down 15-cents) on light trading. So far this month, the front month WTI contract is up three dollars and has gradually posted new, six month highs in the process.

Western Canadian oil production is starting to increase, after the devastating wildfires that lasted through May, though it remains to be seen how long it will take to return to full rates. Crude oil stocks typically decline in May and June anyway, as the refinery maintenance season ends in earnest and demand for oil picks up. With healthy crack spreads abound, look for refiners to maximize input during the summer months.

The June RBOB and Heating Oil NYMEX contracts expire on Tuesday, and trading activity for those has wound down in recent days. On Friday, these front month contracts were basically unchanged (though, as mentioned above, RBOB did post a late day rally which boosted the entire complex).

Gasoline cash markets continue to be very strong. Midwest gasoline and, in particular, Chicago-destination gasoline is fetching a far greater premium than is Gulf Coast gasoline, which should continue to draw barrels north rather than south. In time that will rebalance, but Southeast supply could become tight in the coming weeks.

052716 Weekly Pricing Graph

 

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