Crude prices are $46.93 this morning, down $.16 (.34%) from yesterday’s close but higher overall than yesterday morning. Prices rose $.29 yesterday, as prices found technical support at the 50-day moving average for WTI. The news this week has been bearish, and markets are staying in line with that trend. Despite a small boost to prices yesterday, it looks like prices will end the week at a loss.
Refined products are mostly flat this morning. Diesel and gasoline prices are trading at comparable prices, with diesel at $1.5831 this morning while gasoline is $1.3874. Gasoline had a strong day yesterday, gaining 1.5% to close the day at $1.5869, likely mean reversion after a particularly hard week.
In the downstream market, refined products had a bumpy day yesterday as news came out that the Pernis refinery, Europe’s largest refinery unit producing over 400 kbpd, had resumed production after being offline for nearly a month. Following that announcement, however, came news that Shell’s Deer Park refinery in Texas was offline, taking with it 270 kbpd of production.
Markets continue to be weighed down by concerns of a 14 MMbbl release of crude oil from the U.S. Strategic Petroleum Reserve. In addition, OPEC imports have risen in August despite Saudi Arabia’s promise to significantly shut off supply to the U.S. Since the U.S. has the most visible oil inventories in the world, OPEC claimed that they would cut down U.S. supply to force inventories lower; however, those claims have not come to fruition.
Atlantic storm activity has been increasing this week, with two storms currently being tracked. We’ll share more information on these systems as they develop.
It’s been a turbulent week for oil prices. Crude prices have ranged from a high of $49.16 on Monday to a low of $46.46 on Thursday, a range of $2.70, or over 5% during the week. Compared to Monday’s open, prices have fallen $1.86 (3.8%) this week. On a weekly basis, prices have fallen between Monday’s opening price and Friday’s opening price for three weeks now. During late June through July, prices rose for five straight weeks, gaining $7.70; over the last three weeks, prices have given up $3.83, roughly half, of those gains.
Refined products have also fallen this week, though with less force. Heating oil prices opened at $1.5802, down 5 cents (3.1%) from their opening price on Monday. Gasoline has performed more strongly, losing just 2.2 cents (1.4%) this week, likely because gasoline prices fell so precipitously last week.
The week got off to a slow start when reports indicated a slowing of Chinese oil demand. Refinery utilization and imports were down significantly, leading markets to fear a slowdown of global oil growth. The IEA expects demand to grow by 1.4 MMbbls in 2017, outpacing production growth, but a significant change in demand could alter these numbers. Without strong demand, inventories will remain high, putting a lid on prices.
Markets were perplexed on Wednesday when crude inventories saw the largest draw of the year, falling 8 MMbbls. Yet following the EIA announcement, markets fell significantly. Although the headline news from the report was firmly bullish, the details were bearish. U.S. production continues rising, and is now within a stone’s throw of hitting record highs. As global production rises, markets are watching to see whether inventories will continuously be drawn down after the summer demand seasons closes in a few weeks.
Crudes prices are down to $46.58 this morning after significant losses yesterday and continued losses this morning. After some early morning strength yesterday, prices gave up 94 cents (-2.0%) following the EIA’s inventory report. Crude prices have fallen $.20 (-.43%) since closing yesterday as the markets continue to process the news.
Refined products also took a strong beating yesterday and this morning. Diesel prices lost a full 3.06 (-1.9%) cents yesterday, along with a 1.93 cent (-1.23%) loss this morning, totaling a five-cent loss over two days. Gasoline performed slightly better than crude or diesel, but still gave up 2 cents (-1.3%) yesterday and another 2 cents this morning. Building in refined product inventories dragged the market significantly lower yesterday.
On Tuesday, we wrote that fundamentals are becoming worse and worse predictors of price; yesterday’s losses are a good example of this occurring. Crude prices were drawn down by 8.9 MMbbls, the largest draw of the year. Refinery runs were the leading cause of the drop, turning crude into refined products for consumption, explaining the light gains in gasoline and diesel inventories. Markets instead focused on U.S. production, which rose to its highest point since July 2015, and is just 108 kbpd below its peak. Given the EIA’s prediction earlier this week that U.S. production will grow by 117 kbpd in September, it looks like we’re on set new record production levels.
The fact that markets could not muster a rally in response to the large crude draw is surprising. Market participants point to producer hedging (ie, selling to the market) as a leading cause for the market remaining low, as well as net speculative length that is already high. If all the bullish traders have already bought the market, there are few left to help push prices higher. Markets are also being weighed down by the impending release of 14 MMbbls from the Strategic Petroleum Reserve. Additionally, while OPEC committed to cutting exports to the U.S. in August, imports from Saudi Arabia, Kuwait, and Iraq rose by 500 kbpd, a significant increase.