Petroleum prices fell for a fourth consecutive week, the longest streak of weekly losses since March 27, 2020. After having reached seven-month highs a scant four weeks ago, prices are now at seven-week lows. This was the largest weekly reduction in prices since August. An alarming resurgence of Covid-19 cases in central Europe, the possible release of Strategic Petroleum Reserves from up to five countries, the threat of various types of intervention from the US president including investigations into price gouging, the continuing increase in drilling rigs operating in the US and a stronger dollar were all significant factors in this week’s price drop. On the week, WTI fell by 5.8%, Brent 4%, RBOB 4% and ULSD 4%. Total commercial petroleum inventories did, none the less, fall by 2.1 MB.
US equity indexes were mixed on the week as efforts to tame rampant inflation looms over markets. On the week, the Dow fell 1.4% while the S&P gained 0.3% and the NASDAQ gained 1.2%. Expectations on the increase of the cost of the dollar drove the dollar index to near 16-month highs this week. The dollar index settled at 96.07, up 0.95 on the week. The strengthening value of the dollar weighed on gold prices which fell by $20.90 per ounce to settle at $1,846.80.
A mandatory 10 day shutdown was ordered in Austria with a possibility of a further 10 day extension as restrictions on movements of unvaccinated citizens are imposed. Austria has a vaccination rate of approximately 65%, apparently the lowest vaccination rate in Europe. Additional restrictions are expected in at least some parts of Germany in the week ahead as new Covid-19 cases have spiraled upwards, approaching record highs. The virtual closure of Austria and regions of Germany will result in a loosening of what is perceived to be tight refined product supplies in the region.
In addition to the ongoing threat of the release of Strategic Petroleum Reserves from the United States and China accentuated in a conference call between the US president and Chinese premier this week, India, Japan and South Korea have expressed a willingness to join the US and China in releasing barrels from their Strategic Petroleum Reserves in an effort to further stem price increases.
OPEC+ continues to maintain compliance discipline to its production agreement. Overall compliance of the 28 member countries to the pact stands at 116% while compliance among OPEC members alone exceeds 121%. This production discipline has resulted in OECD Crude stocks now standing at seven-year lows.
A major US investment bank issued a report stating that the threat of releasing stocks from the Strategic Petroleum Reserve has led to prices falling to a level commensurate with an actual release. US Crude inventories fell for the first week in four and 17th in the last 26, falling by 2.101 MB. Crude stocks remain 7% below their five-year average and are 56.5 MB below levels of last year at this time. The price of WTI fell by $4.69 on the week. Inventories in the three PADDs affected by transAtlantic trade fell by 1.674 MB. The reduction was again disproportionately large in PADD 3, the US Gulf Coast, where stocks fell by 4.872 MB. This was due in part to an increase in refinery utilization which rose nationally by 1% to a level of 87.9% as well as due to a significant increase in Crude exports which rose by more than 500 KBPD to a level of 3.626 MBPD. Inventories at the Nymex delivery point of Cushing Oklahoma gained by 206 KB this week, the first build in Cushing in the last six weeks. Production fell by 100 KBPD to a level of 11.4 MBPD, further explaining the regional drop in overall stocks in PADD 3. Shipping data shows a likely continued strong flow of exports in the near term. Expectations of flat utilization and imports with export flows at the very least remaining elevated should result in an additional reduction in US Crude stocks next week of between 2.0 and 2.5 MB.
US Gasoline inventories fell for a sixth consecutive week and sixth in eight dropping by 707 KB. Gasoline inventories remain 4% below their five-year average and are 16 MB below levels of last year at this time. US Gasoline inventories remain near their lowest levels in four years. The price of Gasoline fell by 995 points on the week. The average national price at the pump has fallen by two cents in the past week but still remains quite elevated. Gasoline stocks in the three PADDs affected by trans-Atlantic trade fell by 240 KB this week. Inventories in PADD 1, the US Atlantic, gained by 905 KB yet inventories in the PADD 1 subsection that includes New York Harbor, the Nymex delivery point, actually fell by 849 KB. Inventories fell in the New York area despite a marked rise in imports of 236 KBPD to a level of 823 KBPD. Shipping data indicates a strong likelihood that the flow of imports to the US will fall significantly in the week ahead. Gasoline demand fell by 18 KBPD to a level of 9.241 MBPD. Figures released on Tuesday and Wednesday should reflect reductions in inventory due to draws to secondary storage in advance of the Thanksgiving holiday. The prospects of lower imports, flat production and a likely rise in demand should result in a reduction of Gasoline stocks of 2.0 to 2.5 MB in the week ahead.
US Distillate inventories fell for a sixth week in seven, dropping by 824 KB. US Distillate inventories are now 5% below their five-year average and are 20.4 MB below levels of last year at this time. The price of ULSD fell by 1103 points on the week. Overall US Distillate inventories are near their lowest levels in more than 31 months. Distillate inventories in the three PADDs affected by trans-Atlantic trade fell by 981 KB. The reduction was entirely accounted for in PADD 2, the US midcontinent, where stocks fell by 1.646 MB. This reduction is largely linked to thermal needs. Distillate inventories actually grew in PADD 3 by 200 KB as the flow of exports fell by 390 KBPD on the week to a level of 849 KBPD. The lower flow of exports was well reflected in freight rates in the region which fell through the week. Expectations of reasonably strong demand in advance of the holiday and likely flat production and exports should lead to a reduction in national Distillate inventories of 1.5 to 2.0 MB next week.
The US president has effectively talked the petroleum market into somewhat of a stall. This will likely result in no further action being taken as far as releasing from the Strategic Petroleum Reserve. The prospects of diminishing demand in Europe due to the resurgence of Covid-19 and a stable if not strong dollar should be enough to enable prices to trade in a range bound manner in the shortened upcoming holiday week.