Market Summary: April 24, 2021

Petroleum prices softened on the week, primarily driven by a surge in Covid-19 cases in India, Japan and Brazil that weighed heavily on expectations of near-term demand. Stronger economic and vaccination data from the United States and slight signs of economic improvement in Europe despite a surprisingly poor rollout of Covid vaccines there served to temper weakening prices. Geopolitical concerns eased on the week due largely to Russian troop withdrawals along the Ukrainian border as well as continuing Iranian nuclear discussions in Vienna. A force majeure of more than 300 KBPD of production from Libya provided structural support for Crude, particularly Brent. Total commercial petroleum inventories in the United States gained by 3.6 MB. On the week, WTI fell 1.7%, Brent 1.0%, RBOB 2.2% and ULSD 1.2%.

Strong US housing and manufacturing data and a sharp drop in jobless claims to a 13-month low failed to support US equity markets as anxiety due to fears of inflation persists. On the week, the Dow lost 0.5%, the S&P 0.1% and the NASDAQ 0.3%. The excessive dollar supply also led to a sharp reduction in the dollar index of 0.71 on the week, resulting in a settlement of 90.83. Gold prices fell slightly, dropping by 0.1% to settle at $1,777.80 per ounce.

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India and Japan, the third and fourth largest Crude importers in the world, have experienced an exceptional spike in Covid-19 cases. The increase in India has been particularly acute. India has exceeded 200,000 cases per day over the last seven days, an unprecedented spike in cases since the emergence of Covid more than 14 months ago. The case increase in Japan has resulted in renewed lockdowns. Brazil is approaching 14 million cases in total as a particular variant in the country has apparently intensified contagion.

A 300 KBPD force majeure has been declared on Libyan exports from the Hariga terminal due to a budget issue with Libya’s central bank. Production at Sirte that approximates 200 KBPD may be forced to declare force majeure as well for similar reasons. These events in Libya have served to bolster near-term structure in Brent.

Participants to the OPEC+ agreement are scheduled to meet on Wednesday in Vienna. Despite sporadic increases in production among some members, compliance to the OPEC+ accord stands remarkably high, at 113%. With new production increases scheduled to commence on May 1st, expectations are that the meeting will be void of any surprises.

Discussions regarding the JCPA nuclear agreement continue in Vienna with Iran, the US and other UN Security Council members. Though discussions are ongoing, talks appear to have reached an impasse.

US Crude inventories increased for the first week in four, rising by 594 KB. US Crude stocks remain roughly 1% over their five-year average and are now 25.6 MB below levels of last year at this time. The price of WTI fell by $0.99 on the week. Inventories in the three PADDs affected by trans-Atlantic trade fell by 226 KB. Small reductions in PADDs 1 and 2 were offset by a 1.248 MB gain in PADD 3 which occurred despite a significant increase in utilization rates within PADD 3 to 88% of capacity, a full three percentage points higher than the national rate of utilization. Inventories at the Nymex delivery point of Cushing Oklahoma fell sharply, dropping by 1.318 MB as draws in PADD 3 and PADD 2 which also experienced an increase in utilization fell. Cushing inventories continue below their five-year average. The overall increase in Crude inventories was surprising as utilization rates nationally remain at their highest level since March 2020. The increase in inventories in PADD 3 as cited above was all the more conspicuous as imports fell substantially, dropping by 447 KBPD to 5.405 MBPD. The flow of Crude exports from the US remains depressed, currently standing at 2.4 MBPD. Given the steepening relative discount of WTI to Brent that has occurred and based on current shipping data, we expect the flow of exports to increase significantly in the coming week. We therefore expect Crude inventories in the US to drop by 1.5 to 2.0 MB in the week ahead.

Gasoline inventories increased for a fifth week in six, gaining by 85 KB. Gasoline stocks remain 2% below their five-year average and are 28.2 MB below levels of last year at this time. The price of RBOB fell 442 points on the week. Inventories in the three PADDs affected by trans-Atlantic trade gained by 168 KB. The change was most pronounced in PADD 1, the US Atlantic coast, where stocks rose by 1.22 MB. Inventories in the PADD 1 subsection that encompasses New York Harbor gained by 1.018 MB. The increase in New York Harbor was largely attributable to a 280 KBPD rise in Gasoline imports to a level of 1.119 MBPD. Gasoline imports are now significantly above their five-year highs. The substantial supply of Gasoline in New York Harbor was a leading fundamental influence on the sharp reduction in the month one to month two spread of Gasoline futures on Friday. On a four-week rolling average basis, Gasoline demand is slightly higher than 8.9 MBPD, a figure that is 61.5% higher than last year at this time. Despite flat trans-Atlantic shipping rates, it appears there has been a lull in fixing and as a consequence we expect a significant reduction in the flow of imports next week. We expect Gasoline inventories to fall next week by 2.5 to 3.0 MB.

US Distillate inventories fell for a second consecutive week, dropping by 1.073 MB. Distillate stocks are now 2% above their five-year average and are 5.5 MB above levels of last year at this time. The price of ULSD fell by 222 points on the week. Inventories in the three PADDs affected by trans-Atlantic trade fell by 1.737 MB. The reduction was most pronounced in PADD 1 where stocks fell by 1.578 MB despite a sharp decrease in demand of 274 KBPD. Inventories in PADD 3, the US Gulf Coast, increased by 426 KB as production and the flow of exports eased. Shipping data indicates an increase in export flows next week to a level exceeding 1.2 MBPD. The increase in exports coupled with an expected recovery of demand linked to agricultural needs should result in a further reduction in Distillate inventories of 3.0 to 3.5 MB in the week ahead.
The vast majority of market participants expect demand recovery eventually. Recent developments in Asia and South America regarding Covid-19 appear to indicate uneven demand recovery. We expect dollar weakness to enable outright prices to increase. The strong flow of Crude exports and sustained demand increases in refined products may reverse recent negative trends in cracks



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