Market Summary: May 2, 2021

Petroleum prices reached six-week highs as total commercial petroleum inventories fell by 1.6 MB despite US refinery utilization rates reaching 13-month highs. Prices did ease slightly on Friday largely due to profit-taking linked to the US dollar. On the week, WTI gained 2.3%, Brent 1.7%, ULSD 2.5% and RBOB 3.7%. Overall increases in demand in the US as well as a number of other countries and strong general economic data overshadowed skyrocketing Covid-19 rates in India, ongoing increases in Iranian Crude output which has now reached 2.5 MBPD and maintenance of already established plans by OPEC+ to gradually increase output from now through July.

A sharp increase in consumer spending feeding general fears of a sharp expansion of inflation tempered US equity indices. On the week, the Dow fell 0.5% and the NASDAQ 0.4% while the S&P remained unchanged. The US dollar index improved by 0.47 to a level of 91.30 as constructive economic data was apparent despite inflation concerns. Gold prices fell slightly on the week, dropping by 0.6% as bond yields recovered unexpectedly. Gold settled the week at $1,768.80 per ounce.

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India, the third largest importer of Crude in the world, reported more than 400,000 new cases of Covid-19 on Saturday. India has now reported more than 300,000 cases of Covid-19 in each of the last 10 days. More than 18 million people in India have contracted the virus over the last 14 months. A number of countries including the United States are rushing vaccination supplies to India to stem the relentless increases. Expectations by the Paris-based IEA, OPEC and other analysts approximate 10% of the global demand increase as coming from India in 2021. With present consumption at 4.8 MBPD, Gasoline demand had recovered by 27% in March on a year-on-year basis and diesel demand had recovered by 29% in the same time frame. Indian utilization rates have eased slightly in the recent past as export flows of refined products, a staple of the Indian refining community, have eased.

The OPEC Joint Technical Committee advised membership this week that their projection for global petroleum demand growth of 6% in 2021 is maintained. They further stated expectations of global petroleum inventories to fall to a level of 2.95 billion barrels in July which will result in global inventories dropping below five-year averages. This data was able to provide partial support for OPEC+ to maintain its scheduled increases of Crude production over the next three months.

Iran, a member of OPEC not party to the OPEC+ agreement, increased output in the month of April by 200 KBPD. This figure in conjunction with the 137 KBPD increase in March has resulted in Iranian output reaching 2.5 MBPD. Most of the production is destined for China at heavily discounted prices despite ongoing sanctions spearheaded by the US. Multinational talks in Vienna among participants to the Iranian nuclear pact of 2015 have stagnated over the last two weeks amid increasing Iranian intransigence as well as due to increasing concerns among other Middle Eastern nations fearing Iran obtaining nuclear weapon capabilities.

US Crude inventories increased for a second consecutive week and second week in five, rising by 90 KB. US Crude stocks are right at their five-year average and are 3.45 MB below levels of last year at this time. The price of WTI gained $1.44 on the week. Inventories in the three PADDs affected by trans-Atlantic trade fell by 789 KB. The reduction was disproportionately large in PADD 3, the US Gulf Coast, where stocks fell by 5.067 MB. This occurred despite an unchanged flow of exports and a marked increase in imports of 1.211 MBPD to a level of 6.616 MBPD. This import level is 10% higher than the four-week average versus last year at this time. Inventories in the Nymex delivery point of Cushing Oklahoma gained as well, increasing by 722 KB. Inventories in Cushing remain below their five-year average. The reduction in inventories is largely attributable to continued increases in utilization rates which are now at their highest levels since March of last year, exceeding 15 MBPD. Shipping data indicates a slight lull in Crude flows to the US next week. This coupled with strong utilization rates should result in a reduction in Crude inventories by 3.0 to 3.5 MB in the week ahead.
Gasoline inventories increased for a sixth week in seven, gaining by 92 KB. Gasoline stocks are now 3% below their five-year average and are 24.5 MB below levels of last year at this time. The price of RBOB gained by 741 points on the week. Inventories in the three PADDs affected by trans-Atlantic trade gained by 583 KB. The change was most pronounced in PADD 3, the US Gulf Coast, where inventories grew by a disproportionately large 1.836 MB as regional utilization rates remained quite high. Inventories in the PADD 1 subsection that encompasses New York Harbor, the Nymex delivery point, fell by 605 KB. This is attributable in part to a slight reduction in the flow of imports of 98 KBPD to a level of 1.021 MBPD. Shipping data indicates a further reduction of imports by a similar amount in the week ahead. Though demand fell on the week by 227 KBPD to a level of 8.877 MBPD, this still represents a 67.5% increase on a rolling four-week average basis versus levels of last year at this time. With utilization rates possibly near unchanged, a slight reduction in imports and likely static demand, we expect Gasoline inventories to fall in the coming week by 0.5 to 1.0 MB.

Distillate inventories in the US fell for a third consecutive week, dropping by 3.342 MB. Distillate stocks are now just below their five-year average and are 3.0 MB below levels of last year at this time. This is the first time in more than a year that Distillate inventories have been below their five-year average. The price of ULSD gained by 476 points on the week. Inventories in the three PADDs affected by trans-Atlantic trade fell by 2.469 MB. The reduction was most pronounced in PADD 1, the US Atlantic, where stocks fell by 2.324 MB. Stocks in PADD 1 are now at their lowest levels since April 2020. Inventories in PADD 3, the US Gulf Coast, also fell, dropping by 808 KB on the week. Inventories in the Gulf coast are still 14% above their five-year average. The flow of exports from the US, primarily from PADD 3, are expected to increase in the coming week to a level of near 1.5 MBPD based on current shipping data. Unchanged utilization rates, likely further demand increases linked to agricultural needs and increased exports should result in Distillate inventories falling by 2.5 to 3.0 MB in the week ahead.

Prospects of a weakening dollar and improving global economic conditions should result in higher outright pricing provided Covid-19 growth in India as well as Japan and Brazil is restrained. Increases in US refined product demand should continue to enable structure in both Distillate and Gasoline to improve. We expect outright prices to increase, with Brent prices approaching $70 per barrel in the near term.