Worries about the debt ceiling and ongoing banking sector woes seem to be putting an invisible ceiling on the price of oil despite data that was very supportive to the market, states Phil Flynn of PRICE Futures Group.
The Ringling Bros and Barnum and Baily Circus would be a bit jealous of the showdown over the debt ceiling drama which is the greatest political sideshow on earth. The Biden Administration seems to want to make political points by trying to falsely accuse Republicans of wanting to cut their social security even though was never on the table in these discussions. The petroleum markets seemed to be shaken with more banking rumors that offset a slightly softer-than-expected consumer price index that fell below 5% for the first time in 2 years while having to acknowledge that it is still too high, it is too high to think about a Fed rate cut despite the swirling banking rumors that give oil a risk-off trade.
Now some say that the problem with oil is a recession. And despite some data that shows some slowing down in parts of the economy, the reality is that the data we are getting from the Energy Information Administration (EIA) is far from recessionary. I first want to point to gasoline demand that saw a crazy drop last week that some said was evidence that a recession had hit. Well as I expected, the number last week that showed that gasoline demand had cratered was wrong as we saw a big snap back in demand this week. Gasoline demand week over week sprang back to 9.303 million barrels a day up 685000 barrels a day. If you look at the four-week moving averages, motor gasoline demand averaged 9.0 million barrels a day, which is 2.2% higher than the same period last year.
And last year for gasoline we had more supply on hand. The EIA said that gasoline supply fell by 3.2 million barrels from last week and is about 7% below the five-year average for this time of year. The good news is we have brought on more refining capacity that should help keep gasoline pump prices from soaring but that does not mean they are going to get any cheaper.
US crude supply did get a weekly increase as US exports dropped and we saw a big release from the Strategic Petroleum Reserve. The EIA reported that commercial crude oil inventories increased by 3.0 million barrels from the previous week buffeted by 2.9-million-barrel release from the taxpayer paid for SPR. At least we did not export it all to China and Europe and India like we did last week. And despite the crude build and the record released from the SPR. US crude supplies are still about 1% below average for this time of year. Now what are you going to do when the SPR releases stop?
Farmers are killing it as planting is ahead of schedule and their hard work to feed the world is showing up in the Diesel demand numbers. The EIA reported that distillate demand was at 4,035 million barrels a day up from 3,872 million barrels from the week before. As far as supply the EIA said that distillate fuel inventories fell by 4.2 million barrels last week and are about 16% below the five-year average for this time of year.
Globally there are also signs that supplies are tingeing. Reuters is reporting that fuel oil stocks at the key trading hub Singapore fell to six-month lows, with net imports nearly halving from the previous week, official data showed on Thursday. Onshore fuel oil stocks STKRS-SIN slid for a fifth straight week to 19.19 million barrels (3.02 million tonnes).
Cut in May and go away? Is that the new OPEC mantra? Oil traders are watching OPEC for signs of compliance with the OPEC Plus cuts that have gone into effect on May 1. The latest Platts survey by S&P Global Commodity Insights showed that OPEC and its allies pumped 380,000 b/d fewer barrels of crude oil in April compared to March, as Iraq was unable to export its northern production, while Nigeria suffered major outages. OPEC’s 13 members produced 28.60 million b/d, down 370,000 b/d, the survey found.
Meanwhile, its non-OPEC allies led by Russia saw output drop by 10,000 b/d to 13.39 million b/d. That is a springboard to May where early reports suggest that OPEC will follow through on their cuts.
HFI research says that the first 10 days of crude exports for May indicate OPEC+ is serious about cutting production led by Saudi Arabia and to a lesser extent some signs that Russia is trying to show some restraint. Yet it is still early.
Oil traders are also watching the devastation caused by the Alberta wildfires that have shut in production in the region. Reuters is reporting that “A number of oil and gas companies in Canada’s main crude-producing province Alberta restarted shuttered production on Wednesday as wildfires that sparked widespread evacuations eased, although officials warned conditions could deteriorate. Producers shut in at least 319,000 barrels of oil equivalent per day (boepd), or 3.7% of the country’s production, earlier this week as more than 100 fires ignited across Alberta, forcing nearly 30,000 people to flee their homes.” If Alberta production is forced to shut again the market will start to take notice.
Your way of life is under attack by green energy zealots that want to take your stove and take your car and destroy our economy by making it less efficient with no discernible improvement for the planet. The latest warning is coming from the American Petroleum Institute.
Oil Price reported that “The American Petroleum Institute has slammed the new emission rules proposed by the Environmental Protection Agency. The new rules would require a 13% reduction in annual vehicle emissions in the US and a 56% cut in overall average fleet emissions.
The API believes the proposed rules amount to a ban on internal combustion engines and will make the US dependent on foreign suppliers for EV materials. The new emission rules proposed by the Environmental Protection Agency would effectively mean a phase-out of internal combustion engine vehicles.
That’s according to the American Petroleum Institute, which commented on proposed emission rule changes by the EPA that would require a 13% reduction in annual vehicle emissions in the United States for models 2027 to 2032. The proposed changes would also stipulate a 56% cut in overall average fleet emissions in that period from 2026 levels. “The stringency of the standards as proposed and illustrated by EPA, are effectively a ban on internal combustion engines,” API senior policy advisor Bryan Just told Reuters. The EPA disclosed the proposal in April and is currently conducting public hearings on it.
So do not believe the talk that they do not want to take away your stove or your car. They do.
Natural gas is still having a hard time getting traction. Dan Molinski at the Wall Street Journal wrote that the “three-day rally in natural gas prices comes to a halt as prices fall 3.3% to close at $2.191/mmBtu. The natural gas market continues to shadow—either by coincidence or something else—price movements in WTI crude futures that also fell today and ended a three-day streak of gains. Observers would have to go back more than two weeks, to April 25, to find a day in which the WTI and natural gas front-month contracts didn’t either both finish up or both down. Analysts say the natural gas market may have latched on to oil prices since mild weather leaves little else for brokers and other investors to focus on for guidance.
Learn more about Phil Flynn by visiting Price Futures Group.