Petroleum prices rose for a third consecutive week, reaching their highest levels since October 2018. A positive report from the EIA stating that global demand would reach pre COVID-19 levels by the end of the year touching 100.6 MBPD and continued strong compliance among OPEC+ members as adherence to the production levels in May was assessed at 115% propelled prices higher. On the week, WTI gained 2.2%, Brent 1.4% and ULSD 0.04%. RBOB fell by 1.2%. A possible reversal of policy by the current administration on easing biofuel mandates caused refined product prices to plummet on Friday as Gasoline cracks fell to six-week lows. Cracks had already appeared to be reaching a plateau as weekly inventories showed significant builds in refined products and utilization rates as well as sharp reductions in demand. Total commercial petroleum inventories in the US gained by 15.5 MB last week.
The US consumer price index rose to 5%, reaching its highest level since 2008. This and slightly higher than expected initial jobless claims tempered performance in U.S. stock indexes. On the week, the Dow fell 0.8% while the S&P gained 0.4% and the NASDAQ 1.8%. The dollar index increased by 0.38 to reach 90.51. Gold prices fell by $12.50 to settle at $1,879.50 per ounce.
The Paris-based IEA stated in its monthly report that global producers would need to significantly increase output to address rising global demand which is expected to exceed pre Covid-19 levels by the end of the year. The statement said, “OPEC+ needs to open the taps to keep the world's oil markets adequately supplied.” The report went on to state that global demand will increase by 5.4 MBPD in 2021 and 3.1 MBPD in 2022. The IEA added that slow COVID-19 vaccination programs in non-OECD countries could limit increased demand expectations.
US Renewable Identification Numbers (RINs) traded at all-time highs of $2.00 on Thursday before dropping nearly $0.22 on Friday. Prices fell due to reports that the current administration was considering accommodations on RINs to appease labor unions and a growing number of US senators. The price of renewable volume obligations had doubled since the current administration took power in late January. Cracks, already softened by the post Memorial Day EIA statistics, plummeted to their lowest levels since April as a result.
A report released on Thursday morning regarding the removal of sanctions on a number of Iranian individuals caused outright prices to temporarily plummet until the very limited magnitude of the action was assessed. US and Iranian representatives are scheduled to resume discussions in Geneva today regarding the JCPOA of 2015 as the impasse between the two countries continues. Iranian presidential elections are less than a week away.
In a report released on Wednesday a major U.S. investment bank stated that it still expects Brent prices to reach or exceed $80.00 per barrel by the end of this summer.
US Crude inventories fell for a third consecutive week and fifth week in six, dropping by 5.241 MB. US Crude stocks are now 4% below their five-year average and 64.1 MB below levels of last year at this time. The price of WTI gained $1.29 on the week. Inventories in the three PADDs affected by trans-Atlantic trade fell by 6.446 MB. Inventories in PADD 3, the US Gulf Coast, again fell by the largest amount, dropping by a disproportionate 6.793 MB. Utilization increased to its highest level since the beginning of the COVID-19 pandemic. Inventories at the Nymex delivery point of Cushing OK increased for a second week in a row due in part to a reduction in US Crude exports linked to the ever-narrowing WTI/Brent spread. The flow of exports has fallen to 2.9 MBPD. Imports grew by 1.007 MBPD, the largest weekly increase since May as utilization rates rose to 91.3% of capacity, a 3% weekly increase. We expect Crude production to remain steady, exports to fall slightly based on current shipping data and utilization rates possibly increasing by a slight amount. As a consequence, we expect US Crude inventories to fall by 2.0 to 2.5 MB in the coming week.
US Gasoline inventories increased for a second consecutive week and second week in four, rising by 7.046 MB. US Gasoline stocks are at their five-year average and are 17.7 MB below levels of last year at this time. The price of Gasoline fell by 254 points on the week. Inventories in the three PADDs affected by trans-Atlantic trade gained by 7.518 MB. The increase was again most pronounced in PADD 1, the US Atlantic, where stocks grew by 3.403 MB. Inventories in the PADD 1 subsection that encompasses New York Harbor, the Nymex delivery point, gained by a substantial 1.086 MB. This growth was largely attributable to a sharp increase in the flow of Gasoline imports to the US. Imports grew by 117 KBPD to reach a level of 1.05 MBPD, a figure well over its five-year high. Shipping data does indicate a drop, possibly significant, of Gasoline imports to the US in the week ahead. National Gasoline demand on the week fell substantially, dropping by 666 KBPD to a level of 8.480 MBPD. Production also increased and now exceeds 9.43 MBPD. We do expect an increase in demand in the coming week to a level closer to 9 MBPD. This, coupled with an anticipated reduction in imports should limit further expansion in Gasoline inventories. This limitation will be tempered by further anticipated increases in production. We therefore believe that US Gasoline inventories will increase by 1.5 to 2.0 MB in the week ahead.
US Distillate inventories increased for a second consecutive week and second in nine, rising by 4.412 MB. US Distillate stocks are now 5% below their five-year average and 38.6 MB below levels of last year at this time. The price of ULSD gained eight points on the week. Inventories in the three PADDs affected by trans-Atlantic trade gained by 3.692 MB. Inventory growth was again most pronounced in PADD 1, the US Atlantic, where stocks increased by 1.850 MB. Inventory growth was driven by a significant reduction in demand nationally of 400 KBPD to a level of 3.413 MBPD. Such a reduction, even given the fact that agricultural demand has been addressed for the time being, appears quite severe given recent increases in economic activity. We expect Distillate demand figures to increase to close to 4 MBPD in the week ahead. We expect the flow of exports to remain steady at 1.1 MBPD based on current shipping data. With exports flat, production possibly slightly higher and demand higher, we anticipate Distillate inventories will increase but by a substantially smaller amount than this past week. We expect US Distillate inventories will rise by 1.0 to 1.5 MB in the coming week.
The Paris-based IEA report issued this week was clearly bullish in tone on a long-term basis. The EIA inventory report is perceived to be bearish on a short-term basis. The additional interference of the US government in the valuations of refined products as cited above has clouded the near-term direction of cracks. Given long-term expectations of improving economic performance, some buying opportunities in cracks may soon present themselves in latter months, specifically towards the end of this year, particularly in Distillate. We continue to expect outright prices to increase in a choppy manner.