Market Summary: November 7, 2021

Petroleum prices fell for the second week in 11, recovering from sharp reductions midweek that briefly touched October lows. This was the worst week for prices since August. At the virtual meeting in Vienna this past week, OPEC+ maintained the path of gradual increases, adhering to their long-established policy which led to a monthly boost in output of 400 KBPD. OPEC+ intransigence at repeated requests from Western leaders asking for a further boost in supplies fell on deaf ears which resulted in the implied threat of a release of Crude from the US Strategic Petroleum Reserve. Despite this week’s price weakness, Gasoline inventories in the US fell to their lowest levels since November 2017. On the week, total commercial petroleum inventories gained 600 KB. WTI prices fell by 2.8%, Brent by 1.2%, RBOB by 5.9% and ULSD by 0.9%.

A surprisingly positive employment report as well as news of a pill that may essentially end restrained public behavior in the ongoing battle against the Covid-19 virus provided support for equity indexes as the rate of inflation continues to run rampant. On the week, the DJIA gained 1.4%, the S&P 2.0% and the NASDAQ 3.1%. All indexes touched all-time highs and all indexes increased for a fifth consecutive week. The dollar index was little changed, gaining 0.08 to settle at 94.22. Gold prices, in response to inflationary concerns, gained more than $35 per ounce this week to settle at $1,820 per ounce.


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The US Energy Secretary stated that “the SPR is certainly on the table as an option” in response to the refusal of OPEC+ to further increase output after pleas from a number of world leaders to do so, including the US President. A number of the pleas from world leaders occurred during the COP26 conference in Glasgow where the US along with 18 other countries agreed to no longer finance oil, gas or coal projects in the future as part of their commitment to clean energy. Saudi Arabia, the de facto leader of the OPEC+ agreement, saw its daily production exceed 10 MBPD last week for the first time since the onset of the Covid-19 virus. Compliance to the OPEC+ pact is now estimated at 116%.

China announced a release of Gasoline and Distillate stocks into domestic markets less than four weeks after their largely symbolic release of Crude from their Strategic Petroleum Reserve. China has had particular issues with maintaining acceptable levels of Distillate supplies after suspending exports of Distillate less than three weeks ago. Current Chinese Distillate production is 3.15 MBPD, 3.5% lower than last year at this time.

A major petroleum publication as well as a major oil company and investment bank all estimate global demand for the month of October to have risen to approximately 100.4 MBPD. Forward curves in Crude and refined products continue to reflect tightness in all markets.

US Crude inventories rose again for the second week in six and eighth in 25, increasing by 3.29 MB. Crude stocks remain 6% below their five-year average and are 50.3 MB below levels of last year at this time. The price of WTI fell by $2.30 on the week. Inventories in the three PADDs affected by trans-Atlantic trade rose by 3.224 MB. The increase was most pronounced in PADD 3, the US Gulf Coast, where stocks rose by 1.958 MB. Most of the gain was found in the rise in national production of 200 KBPD to a level of 11.5 MBPD. Production in the US is at its highest level for 2021. The operating rig count in the US rose again on Friday, indicating further expansion of US domestic production as likely. Imports actually fell by 82 KBPD to a level of 6.172 MBPD. Inventories at the Nymex delivery point of Cushing Oklahoma continue a relentless march downward. Stocks there fell by 916 KB and now stand at 26.416 MB. US exports of Crude increased slightly and now stand at 2.925 MBPD. Utilization rates improved by one full percentage point to 86.3% of capacity. As more refineries emerge from seasonal maintenance, we expect this number to increase in the week ahead. The increase in utilization, coupled with likely flat imports and exports, should result in Crude stocks continuing to grow on the national level. We expect Crude inventories will rise by 2.5 to 3.0 MB in the week ahead.

US Gasoline inventories fell for a fourth consecutive week and fourth week in seven, dropping by 1.411 MB. Gasoline inventories are now 5% below their five-year average and are 13.4 MB below levels of last year at this time. As stated earlier, Gasoline inventories are at their lowest levels since November 2017. The price of Gasoline fell by 1411 points on the week. The average national price for a gallon of Gasoline at the pump now stands at $3.42 per gallon, a seven year high. Gasoline stocks in the three PADDs affected by trans-Atlantic trade fell by 1.263 MB. The drop was most pronounced in PADD 1, the US Atlantic, where stocks fell by 1.76 MB. Inventories in the PADD 1 subsection that encompasses New York Harbor, the Nymex delivery point, gained by 799 KB. This gain was largely facilitated by a rise in imports of 174 KBPD to a level of 667 KBPD. Shipping data indicates a further increase in the flow of imports next week as trans-Atlantic freight rates have risen sharply. Gasoline demand improved by 181 KBPD this week to a level of 9.504 MBPD, a figure which strikes us as rather high for this time of year. A likely reduction in Gasoline demand next week coupled with an increase in imports as cited earlier should result in national Gasoline inventories remaining within 500 KB of unchanged in the coming week.

US Distillate inventories gained for the first week in five and second week in 10, increasing by 2.16 MB. US Distillate inventories are now 5% below their five-year average and are 27.5 MB below levels of last year at this time. The price of ULSD fell by 408 points on the week. Inventories in the three PADDs affected by trans-Atlantic trade increased by 1.202 MB. A sharp increase in the US Atlantic was offset in part by small reductions in PADDs 2 and 3. The increase in inventories was facilitated by an increase in production nationally of 252 KBPD. Despite sharp increases in freight rates from the US Gulf Coast to Latin America as well as Northwest Europe, the flow of exports rose only slightly to a level of 1.028 MBPD. We find this figure quite odd and expect an adjustment upwards next week. We maintain our view from last week that the export flow from the US should meet or exceed 1.5 MBPD. This figure, coupled with a likely increase in demand from the current level of 3.686 MBPD, something that is quite likely given weather forecasts in the Northeast, should result in a reduction in Distillate inventories. Heightened exports and demand with a small increase in production should render Distillate inventories 3.0 to 3.5 MB lower in the week ahead.

The probable impact of a release from the Strategic Petroleum Reserve, should it occur, will likely be effective for a brief period of time but would largely be symbolic and temporary. One need look no further than the recent attempt by the Chinese to impact the market with similar behavior. Overall long term sentiment regarding the direction of the price of petroleum remains clearly bullish. The continuous reduction of inventories at Cushing Oklahoma will provide fundamental price support for market strength. Recent exceptional volatility is likely to persist with the overall outright direction still rising despite this week’s correction.

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