Petroleum prices fell for a third week in four, experiencing their largest weekly drop in terms of percentage of value in the last two years. A massive release from the US Strategic Petroleum Reserve over the next six months that will be part of a larger multi-national program to be coordinated by the EIA, OPEC+ staying its course with another 432 KBPD increase for the month of May, and a further drop in Gasoline demand in the United States during a period of usual increases were the primary causes for this week’s significant price reduction. On the week, WTI fell 12.9%, Brent 13.5%, RBOB 9.2% and ULSD 16.8%. Total commercial petroleum inventories in the United States actually increased on the week, rising by 1.8 MB.
Ongoing inflation and an inversion of the US Treasury bond yield curve which has been an accurate bellwether of economic slowdowns and recessions contributed to further weakness in equity indexes. On the week, the Dow lost 4.2%, the S&P 4.6% and the NASDAQ 8.8%. The dollar index fell slightly, dropping by 0.24 to settle at 98.57. Gold prices also fell, dropping by $30.50 per ounce to settle at $1,923.70
The US administration announced on Thursday its intention to release 1 MBPD from the Strategic Petroleum Reserve for the next six months. This release which will reduce the federal government’s strategic stockpile by nearly a third will be part of a coordinated effort to release stockpiles among most members of the European Union, Canada, Mexico, Japan and South Korea. The multinational release will be coordinated by the Paris-based IEA. Details regarding the release will be divulged at a press conference by the IEA that is tentatively scheduled for Tuesday. The US administration further stated its intention to waive parts of the Jones act in order to ensure an evenhanded release from the SPR to various national receivers. Such waivers must be based on requests of recipients who have been promised a response from the government in two days.
The US administration further vowed to re-examine utilizing E15 to stretch domestic Gasoline supplies during the summer in an about-face from recent policy aimed at limiting overall ethanol consumption.
The US has apparently exerted some diplomatic pressure on India to limit its consumption of heavily discounted Russian Crude. India and China represent key offtake for Russia as sanctions limit Russian sales due to their ongoing occupation of Ukraine.
US Crude inventories fell for a second consecutive week and fourth in five, dropping by 3.449 MB. Stocks are now 14% below their five-year average and are 91.9 MB below levels of last year at this time. The price of Crude fell by $14.63 on the week. Inventories in the three PADDs affected by trans-Atlantic trade fell by 2.282 MB. The reduction was again disproportionately large in PADD 3, the US Gulf Coast, where stocks fell by 2.511 MB. An increase in utilization rates by a full percentage point to 92.1% of capacity contributed to the reduction in Crude stocks as did the reduced flow of imports which fell by 227 KBPD. This was the sixth consecutive week that utilization rates increased. Crude inventories at the Nymex delivery point of Cushing Oklahoma fell for the first week in three, dropping by 1.009 MB. Cushing inventories are now near their lowest levels since September 2018 and currently stand at 33% of capacity. Crude production rose by 100 KBPD, the first increase in 10 weeks as the rig count figure has increased by 39 units in that period. US Crude exports fell by 856 KBPD to a level of 2.988 MBPD. This figure remains near five-year highs. Expectations of increases in utilization and production with imports at best flat should result in a further reduction in US Crude inventories of 2.5 to 3.0 MB in the week ahead.
US Gasoline inventories increased for the first week in eight, rising by 785 KB. Gasoline inventories remain at their five-year average and are 8.3 MB above levels of last year at this time. The price of RBOB fell by 3165 points on the week. The average price at the pump for a gallon of Gasoline in the United States actually fell this week, dropping to 4.231. Inventories in the three PADDs affected by trans-Atlantic trade increased by 1.584 MB. The increase was most conspicuous in PADD 3, the US Gulf Coast, where stocks increased by 1.286 MB. Such growth was attributable to increases in refinery utilization rates as well as a reduction in demand of 138 KBPD. This was the third consecutive week Gasoline demand has fallen, something most unusual as spring break travel usually causes demand to increase at this time of year. The flow of imports eased slightly, dropping by 65 KBPD to a level of 656 KBPD, near its five-year average. Shipping data indicates a similar flow of Gasoline imports in the week ahead. Despite the reduction in imports, inventories in the PADD 1 subsection that encompasses New York Harbor, the Nymex delivery point, increased by 512 KB on the week. With refinery utilization rates likely higher, static imports and probable further weakness in demand, we anticipate national Gasoline inventories will gain by 1.0 to 1.5 MB in the coming week.
US Distillate inventories increased for a second week in 11, rising by 1.395 MB. Distillate inventories are now 16% below their five-year average and are 30.6 MB below levels of last year at this time. The price of ULSD fell by 6906 points on the week. Inventories in the three PADDs affected by trans-Atlantic trade gained by 1.569 MB. The increase was most conspicuous in PADD 3, the US Gulf Coast, where stocks rose by 1.151 MB. This occurred despite a rise in exports of 322 KBPD to a level of 1.251 MBPD which caused freight levels to increase sharply in the Gulf region. US Distillate exports are now near five-year highs. The reduction in demand was most conspicuous, falling by 712 KBPD to a level of 3.804 MBPD. With limited thermal demand, reduced demand due to inflationary pressures and a likely slowing economy, we expect demand to remain under 4.0 MBPD in the near term. With continued export flows, increased production and limited domestic demand, we expect Distillate inventories to remain within 500 KB of unchanged in the week ahead.