Crude oil prices are on the defensive after another massive crude oil build in the Gulf Coast led to an overall build of 9.9 million barrels, despite draws in oil products leaving those supplies below the five-year average. Gasoline supply fell by 900,000 barrels leaving it 2% below average and distillates fell by 1.3 million barrels leaving it 6% below the five- year average, according to the Energy Information Administration (EIA). This is raising questions on whether the massive crude oil supply increase is due to the continuing fallout from Houston Shipping channel closures or is a sign that demand is faltering? Or is it just more shale oil?
Well there is some evidence that part of the reason for the crude increase is because Houston has not quite recovered yet. Reuters reported that Enterprise Products Partners LP (EPD) said on Wednesday volumes at its crude marine terminals jumped to a record of nearly 900,000 barrels per day (bpd) in the first quarter, despite a disruption on the Houston Ship Channel. The story noted that a petrochemical fire and fog halted vessel traffic for several days and disrupted movements in the nation’s busiest oil port in late March and into April. Enterprise said it expects in early May to load the remaining backlog of vessels due to the disruption. The company also said volumes of crude from the Permian basin, the largest U.S. oilfield, is expected to increase by about 700,000 bpd in 2019, with export demand rising. “We believe substantially all of this increase in volumes will be destined for international markets,” Jim Teague, chief executive of Enterprise’s general partner, said in a statement.
Those increases and the flat oil exports means that added to the increase in supply. Obviously, they would not be shipping that crude unless they had demand for it. It is light crude, so it is better suited for export.
The other reason for the crude build was a drop-in refinery runs. The EIA said that crude oil refinery inputs averaged 16.4 million barrels per day during the week which was 137,000 barrels per day less than last week. They said that refineries operated at 89.2% of their operable capacity last week. Part of that was due to unplanned outages but we know that refineries are going to have to rabidly increase runs if they intend to meet demand and get product supply back to normal levels.
Demand is very strong and will get stronger. The EIA said that over the past four weeks, motor gasoline demand based on product supplied averaged 9.5 million barrels per day, up by 1.5% from the same period last year and close to a record high. Distillate fuel product supplied averaged 3.8 million barrels per day over the past four weeks, down by 9.6% from the same period last year. The main reason for that drop is the rain and the flooding in the grain belt keeping farmers out of the fields. Last year the weather was better and demand for diesel was stronger. Some point to a bit of a drop in U.S. manufacturing but our sense is that when the fields dry up the diesel demand will flourish.
As far as geopolitical factors embattled Venezuelan president Maduro, sadly, is still there. The Wall Street Journal reported that he almost left and there were high level talks with the opposition party to make that happen. Yet so far, he is hanging on. That means that for the Venezuelan oil industry, there is no hope and production will continue to falter and U.S. sanctions will remain. If Maduro goes, it will be bearish for oil.
Iran sanctions are in play and the market is going to see if anyone will defy President Trump and buy their oil. Most will not because they know that Trump will hammer them if they run afoul of sanctions. Most oil buyers know that it is not going to be worth the headache.
The real story for oil is production issues. We area undersupplied based on demand. While oil traders can be bearish about near term oil supply, it is going to tighten. One development on the supply side to watch is oil out of the Strategic Petroleum Resave (SPR). There was a release of around 500,000 barrels yesterday. We are going to see another 5.5 million barrels released in the coming weeks. That is good because we are going to need it.
Hurricane Season already?
Bloomberg News reports a patch of low pressure swirling over the northwest Bahamas has a 20% chance over the next five days of becoming the first tropical storm of 2019, the National Hurricane Center in Miami said. Either way, the system will probably dump heavy rains across Florida and the Bahamas. Jim Rouiller, chief meteorologist at Energy Weather Group says, “As far as energy production is concerned there is not one worry. The potential storm -- which would be named Andrea if it reaches tropical strength -- developed from a disturbance in the polar jet stream that drifted south and picked up energy from abnormally warm water off the U.S. coast.”
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