Market Summary: April 4, 2021

Petroleum prices increased in a holiday shortened week as key influences were somewhat mixed. A surge in refinery utilization to a one year high as Gasoline demand exceeds that of last year at this time now by more than 10% was an exceptionally positive price influence. Increasing geopolitical tensions between Russia and the Ukraine with the potential to disrupt already low European Natural Gas supplies were generally supportive of prices as well. The agreed to meeting on April 6th of US representatives with other countries party to the Iranian nuclear agreement of 2015 in an attempt to resuscitate the agreement and the OPEC+ meeting resulting in a decision to gradually increase production by 2 MBPD by the end of July served to restrain price increases. The Suez Canal reopened on Monday which limited extreme shifts in regional price differentials. Total commercial petroleum inventories in the US fell by 1.3 MB on the week. WTI prices gained 0.8%, Brent 0.7%, RBOB 2.7% and ULSD 1.2%.

A significant increase in employment as the US emerges from Covid-19 lockdowns enabled equity markets to rise. The DJIA increased 0.2%, the S&P 1% and the NASDAQ 2.6% on the week. The dollar index rose by 28 points to settle at 93.00. Gold prices fell for the second week in four, dropping by $3.90 to settle at $1,728.40 per ounce.


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OPEC+ will stagger production increases over three months starting on May 1. The reductions will be 350 KBPD in May and June and 300 KBPD in July. The 1 MBPD total by OPEC+ will be matched by the Saudi decision to unilaterally resume previous output levels by 1 MBPD. This will be done on a gradual basis as well with production increasing by 250 KBPD over a four-month span. Increases in US refinery utilization above pre-pandemic levels provided OPEC+ with enough evidence of demand resurgence, though European demand impacted by renewed increases in Covid-19 cases as well as a particularly slow rollout of vaccines has tempered such expectations. OPEC+, with agreement compliance currently at 113%, is relying on a robust demand recovery in the third quarter of 2021. With the increases in output through July, more than 7 MBPD of global Crude production capacity will still remain idled. It is now estimated that Gasoline and Distillate inventories in the Atlantic basin are at or near pre-Covid levels while utilization is still 2.5 MBPD below pre-Covid-19 levels.

There has been a significant escalation in the long-standing clashes between Ukrainian troops and Russian mercenaries in the Donbas and Shymy regions in Ukraine. Russia’s purpose for this escalation appears to be to retake enough territory to ensure water supplies for their previous annexation of Crimea. Ukraine still controls waterflow to Crimea and has reduced its availability by approximately 85%. Should this escalate to a significant level, risks to European Natural Gas supplies in Russia will increase. End of season Natural Gas stocks in Europe are quite low and such vulnerability could result in a sharp increase in European Distillate pricing.

Iran and China agreed to a 25-year trade and cooperation pact this week that will result in increased flow of Crude from Iran. Current data shows Iranian output has increased by 490 KBPD since February, the first full month of the new US administration.

US Crude inventories fell for the first week in six, dropping by 876 KB. US Crude stocks remain at 6% over their five-year average and are 32.6 MB above levels of last year at this time. The price of WTI increased by $0.48 on the week. Inventories in the three PADDs affected by trans-Atlantic trade fell by 623 KB. The reduction was most prominent in PADD 2, the US midcontinent, where stocks fell by 1.148 MB. Inventories at the Nymex delivery point of Cushing Oklahoma, within the PADD 2 district, rose for the first week in three, increasing by 782 KB. This increase occurred despite a significant rise in refinery utilization of 2.3% to 83.9% of capacity. This was the fourth consecutive week that refinery utilization rates have increased. Refinery utilization is now far in excess of levels prior to the Texas freeze. Crude exports from the US increased by 693 KBPD to a level of 3.2 MBPD. This rise was largely driven by the expansion of the relative value of Brent versus WTI that was further accentuated by the closure of the Suez Canal. Though the trend for Brent versus WTI remains positive, we expect this differential to ease which should result in a slight decrease in exports in the near term. Another increase in the weekly US rig count and higher outright pricing should enable US domestic production which climbed to 11.1 MBPD to rise further. An anticipated slowdown in exports, a rise in domestic production, and a limited increase in refinery utilization which has already risen for four consecutive weeks should result in US Crude inventories being within 500 KB of unchanged in the coming week.

US Gasoline inventories fell for a third week in five, falling by 1.735 MB. US Gasoline stocks are now well below their five-year low and are 16.3 MB below levels of last year at this time. The price of RBOB gained 550 points on the week. Inventories in the three PADDs affected by trans-Atlantic trade fell by 2.147 MB. The reduction was most pronounced in PADD 2, the US midcontinent, where stocks fell by 2.356 MB. March 2021 Gasoline sales in the US were 10.1% higher than Gasoline sales in March 2020. Though March 2020 was a month affected by the first wave of Covid-19, the recovery in demand is still significant. We expect Gasoline production to remain high in the medium-term to enable inventories of summer spec Gasoline to increase. As anticipated, Gasoline imports fell significantly as trans-Atlantic freight rates remain relatively weak. The flow of imports fell by 320 KBPD to a level of 619 KBPD. We expect a similar flow of imports primarily from Europe in the week ahead. Demand for Gasoline was reported at 8.891 MBPD. This figure represents a significant rise in demand that is linked with increasing Covid-19 vaccinations as well as a sharp increase in spring break/Easter week demand. We therefore expect demand will ease somewhat next week. With likely increases in utilization, a further small reduction in imports and a probable reduction in demand, we expect Gasoline inventories to gain by 500 KB to 1 MB in the week ahead.

US Distillate inventories increased for a third week in 10, rising by 2.542 MB. Distillate stocks are now 4% over their five-year average and 21.9 MB above levels of last year at this time. The price of ULSD gained 216 points on the week. Inventories in the three PADDs affected by trans-Atlantic trade gained by 2.032 MB. The increase was most pronounced in PADD 2, the US midcontinent, where a sharp rise in refinery utilization rates were not met by any increases in either thermal or agricultural demand. Distillate production climbed by 137 KBPD on the week, rising for a fourth consecutive week to a level of 4.738 MBPD. Distillate exports fell surprisingly by 426 KBPD to a level of 703 KBPD, well below their seasonal five-year low. Shipping data indicates a static flow of exports in the week ahead. Overall Distillate demand was 4.113 MBPD last week. It is unusual for demand to exceed 4 MBPD in what is reasonably considered a post-thermal, pre-agricultural demand period. Production, which has risen for four consecutive weeks, is likely to continue to grow. Expectations of limited demand and static exports with a likely increase in production should result in growth in Distillate inventories by 2.5 to 3.0 MB in the coming week.

Current overall demand levels in the US are already at or in excess of pre-Covid levels. It is difficult to expect demand growth to continue to any significant extent in the near term. It is reasonable to expect increases in refinery utilization to continue with the aid of OPEC+ production increases. We feel it quite plausible that outright prices can correct downward in the near term. Gasoline should remain the best relative value in the petroleum complex. Volatility could increase in European Distillate values should Russian / Ukrainian skirmishes escalate.