Market Summary: October 2, 2021

Petroleum prices rose for a sixth consecutive week and sixth consecutive quarter. This was the largest monthly increase since June as Crude prices touched three year highs earlier in the week. Prices increased despite US Crude inventories rising for the first week in eight. Ongoing global production disruptions, the lingering effects of Hurricane Ida, a reversal in Chinese policies that should increase demand and overwhelmingly high Natural Gas prices that carry with them the threat of a shift in demand to petroleum-based stocks for thermal needs were the leading causes for increasing prices. On the week, WTI gained 2.6%, Brent 2.7% while RBOB and ULSD both exceeded 5%. Total commercial petroleum inventories in the United States gained 10.9 MB on the week.

Inflation rates in the United States reached 30-year highs this week, dampening US equity indexes. The budget impasse and the threat of not raising the debt ceiling in Washington also weighed on equity markets. On the week, the DJIA lost 1.4%, the S&P 2.2% and the NASDAQ 3.2%. The dollar index weakened, ending the week at 94.07. Gold prices increased as a consequence of dollar weakness, rising by $9.70 to settle at $1,761.30 per ounce.

Learn more about CQG's solutions for energy

On Thursday, a major business news outlet reported that OPEC+ was weighing an additional production increase over the currently approved level of 400 KBPD at their meeting which will be held virtually tomorrow in Vienna. This may occur despite the inability of OPEC members, specifically Nigeria and Angola, from maintaining output at current quotas. OPEC+ which has a spare production capacity of 8.2 MBPD may look to limit the velocity of recent price gains as the threat of demand destruction may occur at levels above $80 per barrel, according to a number of analysts. Shipping data amassed from a number of independent sources appears to show OPEC production increases in the month of September were actually 420 KBPD as opposed to the avowed increase of 400 KBPD.

In an apparent reversal of policy, a scant two weeks after selling Crude from its SPR to control inflation, Chinese central authorities have instructed their state oil companies to resume building inventories for what may be a harsh winter.

Natural Gas prices are now 99% higher year-to-date. Prices have risen above five dollars per MMBtu for the first time since February 2014. Electricity and heating demand is expected to spike sharply in the northern hemisphere this winter. Natural Gas prices have been driven by a remarkable increase in exports to Europe through the summer and early part of the autumn. Natural Gas inventories are 7.4% below their five-year average and 16.8% below levels of last year at this time as more than 77.3% of Natural Gas production in the Gulf of Mexico is still off line, due in large part to Hurricane Ida.

US Crude inventories increased for the first week in eight and fourth in the last 20, rising by 4.578 MB. Crude stocks are now 7% below their five-year average and are 73.9 MB below levels of last year at this time. The price of WTI gained $1.91 on the week. Inventories in the three PADDs affected by trans-Atlantic trade increased by 4.710 MB. Inventories rose by a disproportionately large amount in PADD 3, the US Gulf Coast, where stocks rose by 3.868 MB. A sharp increase in production of 500 KBPD to a level of 11.1 MBPD accounted for most of the gain there. Inventories in PADD 2, the US midcontinent, actually fell by 18 KB but rose in Cushing Oklahoma, the Nymex delivery point by 131 KB. This was the first week in three that inventories in Cushing have grown. US Crude imports remain somewhat high at 6.552 MBPD. This figure has been gaining every week since the arrival of Hurricane Ida. Exports improved, rising for the third week in a row and now exceed 3 MBPD as production increases. In the week ahead, we expect to see utilization rates remain unchanged and exports to remain stable. Further production increases are expected which should result in Crude inventories in the US rising in the coming week by 3.0 to 3.5 MB.

US Gasoline inventories increased for the fourth week in 11, rising by 193 KB. Gasoline inventories remain at 3% below their five-year average and are 6.4 MB below levels of last year at this time. The price of RBOB gained 675 points on the week. Gasoline stocks in the three PADDs affected by trans-Atlantic trade gained by 1.955 MB. A disproportionately large reduction in the geographically isolated PADD 5 Pacific region of 1.843 MB skewed the national figure. Gasoline inventories in the PADD 1 US Atlantic region recovered again this week, rising by 1.532 MB. Inventories in the PADD 1 subsection that encompasses New York Harbor, the Nymex delivery point, fell by 906 KB as imports eased considerably, dropping by 93 KBPD to a level of 989 KBPD. Shipping data indicates a somewhat consistent flow of Gasoline imports in the week ahead. Gasoline demand in the United States rose by 503 KBPD to a level of 9.399 MBPD, a figure which we see as particularly high for this time of year and one which is likely to be reduced substantially next week. With production likely unchanged, demand flat at best and imports probably remaining near unchanged, we expect Gasoline inventories to remain within 500 KB of unchanged in the week ahead.

US Distillate inventories rose for the first week in five, rising by 384 KB. Distillate inventories are now 12% below their five-year average and are 43.1 MB below levels of last year at this time. It should be noted that Distillate stocks are below their five-year low for this time of year. The price of ULSD gained 1156 points on the week. Inventories in the three PADDs affected by trans-Atlantic trade fell by 116 KB. The reduction was most pronounced in PADD 1, the US Atlantic, where stocks fell by 726 KB. A small reduction in PADD 2 of 144 KB also occurred. These two reductions reflect both rising thermal and agricultural requirements. National Distillate demand fell by 451 KBPD to a level of 3.973 MBPD, a level which strikes us as slightly low for this time of year. Distillate exports are now rising from the US Gulf Coast and are likely to exceed 1.2 MBPD next week as freight rates for voyages to both Europe and South America have risen considerably in the last seven days. With production likely flat, demand up on seasonal expectations and exports increasing, we expect Distillate inventories to fall by 1.0 to 1.5 MB in the coming week.

Volatility in the dollar due to a possible debt ceiling freeze and the threat of demand destruction now that Crude prices have reached $80 should enable conditions to remain choppy. The tone and policy that comes from the OPEC+ meeting tomorrow will determine if prices will continue to advance or stabilize.

Read more energy content on