OPEC Decision Drives Oil Price Lower
- Bearish sentiment continues to dominate
- OPEC+ decision will bring more supply to market
- Market volatility offers opportunity to marketers
- Natural gas markets are weaker
Sincerely
Al Levine, Chair
Powerhouse
(202) 333-5380
The Matrix
Petroleum futures accelerated last week’s declines as the latest pronouncements from OPEC+ were seen by the market as bringing more supply to the market in the medium and long run. While the cartel will keep cuts of 3.66 million bpd in place through the end of 2025, the additional cut of 2.2 million bpd will be phased out, beginning in October 2024. Additionally, the United Arab Emirates will be allowed to gradually raise their production by 300,000 bpd.
The most recent EIA report showed that total demand for oil products fell below 20 million barrels daily for the first time in over a month. Domestic refiners produced more than 17 million daily barrels.
Too much refining and too little demand have pushed product prices to significant new lows for this bearish move. For diesel, the $2.15 low from May 2023 is now within consideration as a major support level.
RBOB futures paint an even more striking picture. If the front month contract settles below $2.3043, then the current summer-grade contract will be lower in price than the level at which the last winter-grade contract traded at the end of February.
The dramatic drop in diesel prices highlights one way some customer-focused jobbers are setting themselves apart from their competition. Two months ago on April 3rd, NYMEX diesel futures were trading at approximately $2.70 cents per gallon. An end-user fixing a $2.70 price for the next two months might have felt pretty good about that deal.
While the savvy marketers had no idea what was coming next, they always offer their customers the choice of adding downside protection to their fixed price deal. An option with a premium cost of far less than 40 cents per gallon (how much the market fell in the ensuing two months) allowed these marketers to offer their customers a lower price as the market dropped. Powerhouse works with jobbers across the country to help them craft strategies like this every day.
Supply/Demand Balances
Supply/demand data in the United States for the week ended May 24, 2024, were released by the Energy Information Administration.
Total commercial stocks of petroleum increased (⬆) 12.7 million barrels to 1.2632 billion barrels during the week ended May 24, 2024.
Commercial crude oil supplies in the United States were lower (⬇) by 4.2 million barrels from the previous report week to 454.7 million barrels.
Crude oil inventory changes by PAD District:
PADD 1: Up (⬆) 0.7 million barrels to 9.1 million barrels
PADD 2: Down (⬇) 1.2 million barrels to 119.2 million barrels
PADD 3: Down (⬇) 3.3 million barrels to 258.2 million barrels
PADD 4: Down (⬇) 0.5 million barrels to 24.4 million barrels
PADD 5: Up (⬆) 0.1 million barrels to 43.8 million barrels
Cushing, Oklahoma, inventories were down (⬇) 1.8 million barrels to 34.6 million barrels
Domestic crude oil production was unchanged (=) at 13.1 million barrels daily.
Crude oil imports averaged 6.769 million barrels per day, a daily increase (⬆) of 106,000 barrels. Exports decreased (⬇) 505,000 barrels daily to 4.225 million barrels per day.
Refineries used 94.3% of capacity; 2.6 percentage points higher (⬆) than the previous report week.
Crude oil inputs to refineries increased (⬆) 601,000 barrels daily; there were 17.083 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, increased (⬆) 483,000 barrels daily to 17.377 million barrels daily.
Total petroleum product inventories increased (⬆) by 16.8 million barrels from the previous report week, up to 808.5 million barrels.
Total product demand decreased (⬇) 647,000 barrels daily to 19.383 million barrels per day.
Gasoline stocks increased (⬆) 2 million barrels from the previous report week; total stocks are 228.8 million barrels.
Demand for gasoline decreased (⬇) 167,000 barrels per day to 9.148 million barrels per day.
Distillate fuel oil stocks increased (⬆) 2.5 million barrels from the previous report week; distillate stocks are at 119.3 million barrels. EIA reported national distillate demand at 3.795 million barrels per day during the report week, a decrease (⬇) of 88,000 barrels daily.
Propane stocks rose (⬆) 2.1 million barrels from the previous report to 66.3 million barrels. The report estimated current demand at 460,000 barrels per day, a decrease (⬇) of 346,000 barrels daily from the previous report week.
Natural Gas
Spot natural gas futures settled the week of May 31 at $2.587. Prices remained well within the recent $2.00+ range supported at $1.60 and with resistance at $3.643.
But one current estimate of domestic reserves of natural gas has expanded substantially. A report of the Institute for Energy Research (IER) put recoverable natural gas resources at slightly more than four quadrillion cubic feet. This is the equivalent of 130 years of supply at current rates. Moreover, it is a 47% increase over IER’s prior report in 2011.
This compares with an estimate of proved reserves of U.S. natural gas which increased 10% during 2022. The estimate was offered by EIA on April 29.
Current natural gas production has not kept up with growth in proven reserves. And if the estimates of growth in natural gas reserves achieves anything like the numbers suggested by IER, the implications for the American natural gas industry are impressive.
The more energy America controls, the greater our control of our own energy security. The American natural gas industry has rapidly internationalized. This would make us a major producer and a major consumer. It would represent a major shift in international control of and access to energy resources, controlling much of the world’s natural gas requirements.
According to the EIA:
- Net injections into storage totaled 84 Bcf for the week ended May 24, compared with the five-year (2019–2023) average net injections of 104 Bcf and last year’s net injections of 106 Bcf during the same week. Working natural gas stocks totaled 2,795 Bcf, which is 586 Bcf (27%) more than the five-year average and 380 Bcf (16%) more than last year at this time.
- According to The Desk survey of natural gas analysts, estimates of the weekly net change to working natural gas stocks ranged from net injections of 71 Bcf to 86 Bcf, with a median estimate of 79 Bcf.
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