Petroleum Market Summary: July 11, 2021

Petroleum prices eased for the first week in seven after briefly touching six-year highs as support derived from strong fundamental circumstances of rising demand and falling inventories was countered by a continuing rift between Saudi Arabia and the UAE that threatens OPEC+ cohesion. A rise in cases of the Delta Variant of the COVID-19 virus has emerged, posing a threat to anticipation of increasing demand primarily in Asian countries. Total commercial petroleum inventories in the United States fell by 9.9 MB. On the week, WTI and Brent fell by 0.8%, RBOB by 0.3% and ULSD by 1.1% in rather volatile conditions.

Volatile U.S. equity indexes reached record highs on Friday after the worst daily drop in three weeks on Thursday. The volatility in equity indexes was driven by counter behavior in treasury yields. The dollar index was essentially flat and stable on the week, settling .03 lower at 92.21. Gold increased for a third consecutive week, rising by 1.53% to settle at $1,810.60 per ounce.


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Overall petroleum demand in the US is more than 18% higher than last year at this time. Total stocks of US Crude and refined products are 188 MB below levels of last year at this time. Total US petroleum inventories have now fallen in 38 of the last 52 weeks.

The prospect of OPEC+ cohesion remains in limbo. Saudi Arabia had originally proposed an increase of 5.8 MBPD in 400 KBPD monthly increments through the end of next year. This path towards gradually increasing supplies as the world emerges from the COVID-19 virus is now unclear as talks collapsed this past Monday due to the intransigence of the UAE on its original baseline quota. The agreement that had been in place left the UAE with the largest percentage of spare capacity, nearly 30% of overall production capacity, a figure much higher than any participant to the agreement. OPEC+ compliance in the month of June was 111%. Russia, the largest non-OPEC participant, is currently producing at a level of 96% of quota. The second largest non-OPEC producer, Kazakhstan, is producing at 80% of quota. Discussions between Saudi Arabia and the UAE are scheduled to resume this week. Informal attempts at mediation have been extended by both Russian and US representatives that, for different reasons, would benefit from an orderly and planned increase in output over the next year and a half.

Global Crude production is now estimated to be 97 MBPD. Were the OPEC+ production increases in place, global production would reach 99.7 MBPD by the end of 2021. Overall global Crude production capacity is currently estimated at 106.1 MBPD based on the average of a number of analysts’ sources.

The Delta Variant of the COVID-19 virus is emerging as a new threat, particularly in Asian countries with relatively low vaccination rates. India, which recently exhibited significant growth in petroleum demand, is under renewed threat from this recent strain.

US Crude inventories fell for a seventh consecutive week and ninth in 11, dropping by 6.866 MB. US Crude stocks are now 7% below their five-year average and are 93.7 MB below levels of last year at this time. More than 40 MB of Crude inventories have been depleted in the last seven weeks. The price of WTI fell by $0.53 on the week. Inventories in the three PADDs affected by trans-Atlantic trade fell by 6.508 MB. Inventories in PADD 3, the US Gulf Coast, fell by the largest amount, dropping by 4.409 MB. A decrease in imports of 531 KBPD to a level of 5.875 MBPD, the second such drop in a row, contributed to the regional reduction. It should be mentioned that exports in Crude also fell sharply, dropping by 1.1 MBPD to a level of 2.6 MBPD. The relatively narrow differential between Brent and WTI has driven the limited flow of exports recently. Inventories at the Nymex delivery point of Cushing OK fell for a fourth week in a row, dropping by 614 KB. Inventories in Cushing are now 21% below its five-year average and are now at their lowest levels since March 2020. We expect refinery utilization rates to remain close to unchanged in the coming week. We further expect imports to remain, at the very least, at current low levels. Shipping data indicates a consistent flow of exports in the coming week. Though there was a slight increase of 200 KBPD in domestic production in the past week, we expect US Crude inventories will continue to fall. We anticipate US Crude stocks will drop by 4.5 to 5.0 MB in the week ahead.

US Gasoline inventories fell for a second week in six, dropping by 6.025 MB. US Gasoline inventories are now 2% below their five-year average and are 16.2 MB below levels of last year at this time. The price of RBOB fell by 78 points on the week. Inventories in the three PADDs affected by trans-Atlantic trade fell by 5.54 MB. The reduction was most pronounced in PADD 3, the US Gulf Coast, where stocks fell by 4.705 MB. Inventories in the PADD 1 subsection that encompasses New York Harbor, the Nymex delivery point, fell by 291 KB. This occurred despite a significant increase in imports, much larger than we anticipated, by a level of 226 KBPD to 1.016 MBPD. This reduction in Gasoline inventories, the first in more than a month, was driven by a staggering increase in demand coinciding with the 4th of July holiday. Demand rose by 870 KBPD, its largest weekly gain in 30 years, to a new historic high of 10.043 MBPD. Gasoline demand is now 13% higher than levels of last year at this time. This sharp increase in demand has helped drive the national average price at the pump for a gallon of Gasoline to $3.143 per gallon. In the week ahead, we do not expect demand or production which increased by 976 KBPD to remain this elevated. We do expect a slight reduction in overall inventories. This reduction will be aided by a much more limited flow of imports which we estimate will fall by at least 200 KBPD in the week ahead based on current shipping data. Lower imports, lower demand, and probable lower production should result in a reduction in Gasoline inventories next week of 2.0 to 2.5 MB.

US Distillate inventories gained for a fourth week in six, rising by 1.616 MB. US Distillate stocks are now 6% below their five-year average and are 38.6 MB below levels of last year at this time. The price of ULSD fell by 239 points on the week. Inventories in the three PADDs affected by trans-Atlantic trade gained by 2.215 MB. The increase was most conspicuous in PADD 3, the US Gulf Coast, where stocks rose by 1.366 MB. The increase in PADD 3 was due in large part to a much lower flow of exports. Current flows stand at 1.023 MBPD. We anticipate exports will drop even further next week, perhaps below five-year lows, to levels of less than 1 MBPD based on current shipping data. Despite expectations of increases in demand last week linked to the holiday, demand fell by 330 KBPD to a level of 3.840 MBPD. We expect demand in Distillate to remain static at best in the coming week. This, coupled with a slowdown in exports and production levels that are likely near unchanged should result in another small increase in Distillate inventories. We expect Distillate inventories to rise in the coming week by 0.5 to 1.0 MB.

With the average price at the pump at $3.143 for a gallon of Gasoline in the US and with expectations of curtailed travel in the week after a holiday, we expect Gasoline demand, and as a consequence, the relative value of Gasoline to possibly erode from other relative values in the petroleum complex. We hold our general view of last week. A continued lack of OPEC+ cohesion as a resolution to the impasse between Saudi Arabia and the UAE will dictate whether prices fall or rise in the coming week.

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