MARKET SNAPSHOT

Exclusive Analysis by Dr. Nancy Yamaguchi

May 22, 2020

Oil prices are trailing down today, yet still are headed for their fourth week of price recovery. Oil-market bulls bid crude prices back above $34.50 a barrel yesterday, roughly twice the price level seen a month ago. Prices received a boost midweek when the Energy Information Administration (EIA) reported that U.S. crude oil stockpiles shrank by 4.982 million barrels (mmbbls) this week. U.S. demand is trending back up. Data for the first three weeks of May indicate that gasoline demand recovered by 1.62 million barrels per day (mmbpd), and diesel demand recovered by 0.32 mmbpd. Demand for jet fuel continued to sink.

Today, West Texas Intermediate (WTI) crude prices are retreating below $33 a barrel as traders take profits ahead of the Memorial Day holiday. Moreover, global markets are pulling back over rising tensions between the U.S. and China. The COVID-19 pandemic is complicating resolution of the ongoing U.S.-China trade war, news of which has been eclipsed by the devastating impact of the coronavirus.

Economic re-opening is proceeding in stages. As of the time of this writing, Johns Hopkins University reports that the U.S. five-day moving average in new COVID-19 cases is trending up. These data are cyclical, however, and the overall trend does indicate that the U.S. has been flattening the curve of COVID-19 infections. The Johns Hopkins Coronavirus Resource Center reports that global cases have risen to 5,128,492, with 333,489 deaths. Confirmed cases in the U.S. rose to 1,577,758, with 94,729 deaths attributed to the disease.

The economic recovery will take time, particularly with unemployment at such staggering levels. Weekly data show an additional 2.44 million people seeking unemployment benefits, following the 2.98 million who filed for benefits last week. There have been 38.9 million unemployment claims over the past nine weeks.

WTI crude futures prices opened at $33.95 a barrel today, a 22.8% increase over last Friday’s open of $27.64 a barrel. This week is heading for a finish in the black. Just four weeks ago, oil prices were dipping below $10 a barrel, and there were concerns about negative oil prices reappearing. Our weekly price review covers hourly forward prices from Friday, May 15 through Friday, May 22. Three summary charts are followed by the Price Movers This Week briefing for a more thorough review.

Gasoline Prices

Gasoline prices strengthened to open at $1.045/gallon today on the NYMEX, compared with $0.9275/gallon on May 15. This was a significant recovery of 11.75 cents (12.7%.) March brought a crippling collapse of nearly 87 cents per gallon, but prices gradually crept back up in April. U.S. average retail prices for gasoline increased by 2.7 cents/gallon during the week ended May 18, averaging $1.878/gallon at the national level. Gasoline futures prices started off this week with strength, buoyed by industry expectations of an inventory draw and stronger demand. But official statistics showed an inventory build and weaker-than expected demand. Prices have fallen off today, but they remain in the black for the week. Gasoline futures prices are trading in the range of $0.98/gallon to $1.05/gallon. The latest price is $1.006/gallon.

Source: Prices as reported by DTN Instant Market

Diesel Prices

Diesel opened on the NYMEX today at $0.9873/gallon, a strong recovery of 8.43 cents, or 9.3%, over last Friday’s open of $0.903/gallon. U.S. average retail prices for diesel continued to decline, falling by 0.8 cents/gallon during the week ended May 18 to average $2.386/gallon. Retail prices for diesel have fallen for 19 consecutive weeks. Diesel futures prices have been up and down this week. Diesel prices currently are stabilizing, and they remain in the black for the week. Currently, diesel is trading in the range of $0.94-$0.99/gallon. The latest price is $0.9635/gallon.

Source: Prices as reported by DTN Instant Market

 

WTI Crude Prices

WTI crude forward prices opened on the NYMEX today at $33.95 a barrel, compared with $27.64 a barrel last Friday. This was a recovery of $6.31 a barrel (22.8%,) which built upon last week’s gain of $4.29 a barrel. The week ended April 24, brought a major collapse of $9.64 a barrel (36.5%.) Prices began to strengthen last week when the 15-week-long streak of growth in oil stockpiles finally was broken by a small stock drawdown. This week brought a more significant drawdown from crude inventories. Futures crude prices are flattening today, but they appear set nonetheless for a finish in the black. WTI prices are trading in the $31.00-$34.00 a barrel range currently. The latest price is $32.61 a barrel.

Source: Prices as reported by DTN Instant Market

PRICE MOVERS THIS WEEK: BRIEFING

Oil prices are trailing down today, yet still are headed for their fourth week of price recovery. Oil-market bulls bid crude prices back above $34.50 a barrel yesterday, roughly twice the price level seen a month ago. Prices received a boost midweek when the Energy Information Administration (EIA) reported that U.S. crude oil stockpiles shrank by 4.982 million barrels (mmbbls) this week. Last week finally ended a 15-week streak of inventory growth that threatened to overwhelm oil storage capability. Since the week ended January 24, crude inventories grew every week until the week ended May 8. For the year to date, approximately 100 mmbbls of crude has flowed into stockpiles. U.S. demand is trending back up. Data for the first three weeks of May indicate that gasoline demand recovered by 1.62 million barrels per day (mmbpd), and diesel demand recovered by 0.32 mmbpd. Demand for jet fuel continued to sink.

Today, WTI crude prices are retreating below $33/b. Traders are taking profits before the Memorial Day holiday. Moreover, global markets are pulling back over rising tensions between the U.S. and China. China has proposed legislation that would limit political opposition activity in Hong Kong. The COVID-19 pandemic largely eclipsed the ongoing U.S.-China trade war, but its resolution is now being complicated by the severe damage to both economies, accompanied by finger-pointing that has set back steps toward agreement and amity between the two powers.

The American Petroleum Institute (API) released information on Tuesday showing another significant crude inventory build, amounting to 7.58 mmbbls. The API also reported a major build of 4.712 mmbbls of diesel. The API reported a drawdown from gasoline inventories amounting to 1.911 mmbbls. The API’s net inventory build was 10.381 mmbbls. Market analysts had predicted a similar pattern of crude and diesel inventory additions, plus a gasoline drawdown, with a total addition to inventories of 5.359 mmbbls.

Prices rose on Wednesday when the U.S. Energy Information Administration (EIA) official statistics instead reported a crude oil inventory draw. The drawdown from crude stocks was 4.982 mmbbls, coming on the heels of last week’s small draw, which had finally reversed a 15-week trend of growth in stockpiles. However, the EIA also reported product inventory additions of 2.83 mmbbls of gasoline plus 3.831 mmbbls of distillate. The EIA net result was an inventory build of 1.679 mmbbls. Although there was a net addition to stockpiles, it was a fraction of what the industry had expected, and it was viewed as bullish news. Crude oil inventories have expanded in 16 of the 19 weeks so far this calendar year, sending a total of 99.53 mmbbls of crude oil into storage.

The EIA reports that crude oil in storage at Cushing rose from 35,501 thousand barrels during the week ended January 3, 2020, to 65,446 thousand barrels during the week ended May 1, 2020, an increase of 29,124 thousand barrels, before finally easing to 62,444 mmbbls during the week ended May 8 and 56,857 mmbbls during the week ended May 15. Some surplus crude is being stored in the National Strategic Petroleum Reserve (SPR.) The U.S. government announced plans to take advantage of low prices and support the oil industry by purchasing up to 11.3 mmbbls of sweet crude and up to 18.7 mmbbls of sour crude for the SPR. This is not necessarily domestic crude. The delivery date is between May 1 and June 30. The EIA reports that SPR additions were made in the weeks ended April 24 (1.150 mmbbls), May 1 (1.716 mmbbls), May 8 (1.933 mmbbls) and May 15 (1.882 mmbbls). Current SPR stocks are 641.648 mmbbls.

U.S. crude production continues to decline. The EIA reported that U.S. crude production during the week ended May 15 fell to 11.5 mmbpd, down 0.1 mmbpd from 11.6 mmbpd the prior week. According to the EIA’s weekly data series, U.S. crude production averaged 13.025 mmbpd in February, the highest total ever. Production fell to 12.25 mmbpd during the first four weeks of April and 11.67 mmbpd during the first three weeks of May.