Petroleum prices fell for a second consecutive week and fourth in five, driven primarily by details of a release of more than 180 MB from the US Strategic Petroleum Reserve that will be done in conjunction with the IEA that will release an additional 60 MB from 31 member countries over the course of the next six months. Extended Covid related lockdowns in China and signs of slowing US demand growth further served to offset continuing reductions in Russian exports linked to self- sanctioning for its continued state of war against the Ukraine. On the week, WTI fell 1%, Brent 1.5%, RBOB 0.7% and ULSD 3.2%. Total commercial petroleum inventories increased by 5.2 MB on the week.
A continually deteriorating economic outlook in the US persists as the Federal Reserve reinforced its position in statements this week that it will raise interest rates up to 3% more by the end of the year to combat rampant inflation. This weighed heavily on equity indexes as the Dow lost 4.5%, the S&P 5.8% and the NASDAQ 12.4%. The dollar index rose sharply, rising by 1.27 to settle the week at 99.84. Gold prices also increased, rising by $21.90 per ounce on the week to settle at $1,945.60.
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The US administration announced this week its intention to further release up to 180 MB of Crude from its Strategic Petroleum Reserve in a coordinated effort with the Paris-based IEA which will oversee the release of an additional 60 MB from strategic petroleum reserves of its 31 member nations. IEA member nations claim to have more than 1.5 billion barrels in strategic reserves. There has been no announcement by the US administration on how or if barrels released from the strategic petroleum reserve will be replaced. Prior to this administration, releases from the reserve always occurred with the caveat of replacement as the purpose of the reserve was stated as a means of sustaining US refinery operations at a time of war.
This IEA coordinated release is designed to offset reduced Russian export flows amid widespread self-sanctioning in most countries with the glaring exceptions of China and India. Shipping data does indicate a disruption of the flow of Crude and refined products of up to 3 MBPD from Russia now. Such information, largely gleaned from shipping data, appears to be further confirmed by anecdotal evidence provided by Russian authorities indicating reductions in output of petroleum and Natural Gas condensates.
A resurgence of Covid-19 in China has led to extensive delays in the discharge of tankers currently holding more than 22 MB of Crude. It is estimated that waiting times for discharge of most tankers has more than tripled in the last two weeks.
US Crude inventories gained for a second week in six, rising by 2.421 MB. Stocks remain 14% below their five-year average and are 85.9 MB below levels of last year at this time. The price of Crude fell by $1.01 on the week. Inventories in the three PADDs affected by trans-Atlantic trade gained by 4.355 MB. The increase was disproportionately large in PADD 2, the mid-continent, where stocks increased by 3.045 MB. Inventories at the Nymex delivery point of Cushing Oklahoma which is within PADD 2 increased by 1.654 MB, rising for the third week in four. The flow through PADD 2 has been linked to an increase in the flow of exports from the US which rose by 700 KBPD last week to a level of 3.7 MBPD, a figure that is above the five-year high. Growth in inventories despite increases in exports was facilitated in part by domestic production increasing by 100 KBPD. This was the second consecutive week that production in the US increased. The operating rig count in the US ended the week at 546. Operating rig counts last year at this time numbered 337. As expected, refinery utilization increased for a seventh consecutive week,rising by 0.5%. Shipping data indicating a continued strong flow of exports and refinery utilization rates that should continue to rise will likely result in a reduction in US Crude inventories of 1.5 to 2.0 MB in the coming week.
US Gasoline inventories fell for the eighth week in nine, dropping by 2.041 MB. Gasoline inventories are 1% below their five-year average and are 2.2 MB above levels of last year at this time. The price of RBOB fell by 219 points on the week. Inventories in the three PADDs affected by trans-Atlantic trade fell by 2.918 MB. This reduction was most conspicuous in PADD 1, the US Atlantic, where stocks fell by 1.335 MB as retailers rush to purge inventories of oxygenated winter grades. The reduction in inventories on the Atlantic coast was further facilitated by a sharp reduction in Gasoline imports which dropped by 172 KBPD to a level of 484 KBPD, welll below five year lows. Shipping data does indicate an increase in the flow of imports from Europe in the coming week. This was also the first week in fourthat demand increased. The increase was small, 63 KBPD, with current demand standing at 8.562 MBPD, a figure substantially below seasonal expectations. Likely static demand, increased imports and increased production should result in a gain in national Gasoline inventories of 1.0 to 1.5 MB in the week ahead.
US Distillate inventories increased for the third week in 12, rising by 771 KB. Distillate inventories are now 15% below their five-year average and are 31.2 MB below levels of last year at this time. The price of ULSD fell by 1064 points on the week. Inventories in the three PADDs affected by trans-Atlantic trade gained by 64 KB. The most conspicuous change was in PADD 1, the US Atlantic Coast, where Distillate inventories fell by 1.337 MB. This reduction occurred amidst historic increases in the price of jet fuel that have premiums that are 10 times higher than any other peak in the last 30 years. Distillate exports increased by 122 KBPD and are near a five-year high of 1.4 MBPD. Shipping rates have soared in the US Gulf Coast recently as US supplies supplant Russian supplies in Europe as well as South America. Shipping data indicates an increase in exports in the coming week to a level of nearly 1.6 MBPD. Demand remains weak, having fallen by 157 KBPD to a level of 3.647 MBPD. Limited demand expectations, slight increases in production and continued increases in exports should render Distillate inventories to within 500 KB of unchanged in the coming week.