Petroleum prices soften this week as the reality of pending increases in OPEC+ output coupled with increases in production from members not bound to the agreement, emerging signs of a slowing economic recovery linked to stubborn remnants of the Covid-19 virus limiting demand expectations and a significant de-escalation of geopolitical tensions as multinational talks regarding Iranian sanctions that were deemed constructive by all participants all weighed on markets. Total commercial petroleum inventories in the US increased by 2.308 MB. On the week, WTI prices fell by 3.5%, Brent by 2.9%, ULSD by 1.3% and RBOB by 3%.
US equity indexes increased this week despite growing signs of inflation and a surprising rise in unemployment claims. On the week, the DJIA gained 2%, the S&P 2.7% and the NASDAQ 3.12%. The dollar index weakened by 0.72 to settle at 92.18, a two-week low. Gold prices, supported by the threat of inflation, increased by $15.70 on the week, settling at $1,744.10 per ounce.
Although US and Asian petroleum demand have been firming slightly, European inability to vaccinate any significant percentage of their populace against Covid-19 has seriously limited anticipated increases in petroleum demand as the re-imposition of more severe travel restrictions within Europe loom. Sharp increases in Covid-19 cases occurred this week in both Brazil and India, countries that are key focal points of anticipated demand growth. On Monday, India reported more than 100,000 new cases, the highest level for that country since the pandemic began.
Multinational talks in Vienna regarding the 2015 Joint Comprehensive Plan of Action between six nations including the US and Iran were held this week. The president of Iran characterized the talks as a “success.” US representatives who did not speak directly with the Iranian contingent characterized the meeting as “businesslike and constructive.” Should these discussions result in an agreement leading to a renewal of the 2015 pact, sanctions against Iran would be lifted and production and exports from Iran would increase significantly. Iranian output is currently estimated at 2.3 MBPD, a figure some 600 to 700 KBPD higher since the current US administration assumed power. Virtually all of the increased Iranian production has been shipped to China. Iranian production prior to the imposition of sanctions ranged from 3.8 to 4.0 MBPD.
Shipping data indicates that Russia has accelerated output in the first six days of April by 270 KBPD in the wake of the OPEC+ increases agreed to two weeks ago.
Venezuela and Libya, both members of OPEC not party to the OPEC+ production pact, are producing between 1.1 and 1.2 MBPD each.
US Crude inventories fell for a second consecutive week and second week in seven, dropping by 3.522 MB. US Crude stocks are now roughly 5% over their five-year average and are 13.9 MB above levels of last year at this time. The price of WTI fell by $2.03 on the week. Inventories in the three PADDs affected by trans-Atlantic trade fell by 5.706 MB. The reduction was most prominent in PADD 3, the US Gulf Coast, where stocks fell by 4.16 MB. The sharp reduction was attributable to a 200 KBPD drop in production as well as an increase in utilization rates of 103 KBPD. Inventories at the Nymex delivery point of Cushing Oklahoma, within the PADD 2 district, fell for the second week in four, dropping by 735 KB. Regional increases in refinery utilization in the Midwest enabled inventories in PADD 2 to reach their lowest level since March 2020. We expect refinery utilization rates to remain at their current level of 84% with a small possibility of further increases. Should this occur, reductions in all three trans-Atlantic influenced PADDs would likely continue. This coupled with a somewhat consistent flow of exports and unchanged production levels which fell by 200 KBPD this week should result in further reductions in overall Crude stocks by 2.0 to 2.5 MB in the week ahead.
US Gasoline inventories increased again for a third week in four, rising by 4.044 MB. Gasoline stocks remain below their five-year low nationally and are 22.7 MB below levels of last year at this time. The price of RBOB lost 602 points on the week. Inventories in the three PADDs affected by trans-Atlantic trade gained by 4.429 MB. The gains in PADD 2, the midcontinent, of 990 KB and PADD 3, the US Gulf Coast, of 838 KB were significant. Incredibly sharp gains in PADD 1, the US Atlantic region, largely due to a spike in imports, have rendered inventories in PADDs 1 and 3 at roughly even with levels of last year at this time. The rise in imports to a level of 1.297 MBPD was the most conspicuous feature of Gasoline inventory shifts. Shipping data does indicate the significant flow of imports will continue but probably not at levels as high as were seen last week. Demand eased to 8.781 MBPD, a level that still seems relatively high for this time of year as production remains high at 9.279 MBPD. Demand should ease in the week ahead as last week’s Easter holiday marks the end of driving associated with spring holidays. We feel it likely that the reduction in imports will be more significant than the reduction in demand in the week ahead. It should be pointed out that Gasoline demand is being inhibited by a price at the pump that is $0.71 per gallon higher than last year at this time. As a consequence, we expect Gasoline stocks to increase in the week ahead but by a much lower level. We expect Gasoline inventories to rise by 0.5 to 1.0 MB in the coming week.
US Distillate inventories increased for a fourth consecutive week, rising by 1.452 MB. Distillate stocks are now 5% over their five-year average and are 22.8 MB above levels of last year at this time. The price of ULSD fell 240 points on the week. Inventories in the three PADDs affected by trans-Atlantic trade gained by 1.7 MB. The increase was most pronounced in PADD 3, the US Gulf Coast, where stocks rose by 1.171 MB. This occurred despite an increase in exports of Distillate of 154 KBPD. National Distillate demand, void of any thermal or significant agricultural demand, fell by 449 KBPD to a level of 3.664 MBPD. Agricultural needs should emerge and lead to an increase in demand in the next 2 to 3 weeks. Distillate production actually fell by 99 KBPD to a level of 4.639 MBPD. Shipping data indicates a further increase in exports by as much as 250 KBPD. This, as well as some small measure of agricultural demand increases, should result in Distillate stocks remaining within 500 KB of unchanged in the week ahead.
Petroleum prices are clearly in an extended phase of consolidation. Crude prices should remain within a range $57-$65 per barrel. Any sustained price increase in excess of $65 will result in a measurable increase in US production. Seasonal considerations and recent inventory changes have resulted in technical analysis showing Gasoline as the likely weakest element in the petroleum complex in the near term. The multinational discussions among the six nations that were party to the agreement and Iran are scheduled to resume in Vienna on Wednesday. The diminished geopolitical risk associated with these talks should lead to slightly weaker outright values in the week ahead, provided Russia restrains itself from expanding military activities in Ukraine.