Fuels Market Watch Weekly, May 8, 2020 Edition

PRICE MOVERS THIS WEEK : BRIEFING

Markets are cautiously optimistic about the re-opening of economic activities this week, and by data indicating that the number of new COVID-19 cases per day is finally trending down in the U.S. Equities markets are bumpy, but they are faring well relative to expectations. The Dow Jones Industrial Average dropped on Monday, rose on Tuesday and Wednesday, dropped again on Thursday, and recovered again this morning. Good performance in some sectors is being offset by distressingly high unemployment. Over 3.1 million people filed for unemployment benefits last week, with total claims rising to a new record-high 22.6 million. There have been 33.5 million claims over the last seven weeks. Economists have noted that these numbers could be even higher, because some people have not been able to file claims yet. Many people face the harsh reality that some of the lost jobs will never return because of permanent closures and bankruptcies.

The Bureau of Labor Statistics (BLS) released the Employment Situation Report this morning, showing that total nonfarm payroll employment fell by 20.5 million in April, and the unemployment rate rose to 14.7 percent. According to the BLS, “The changes in these measures reflect the effects of the coronavirus (COVID-19) pandemic and efforts to contain it. Employment fell sharply in all major industry sectors, with particularly heavy job losses in leisure and hospitality.” The unemployment rate skyrocketed by 10.3 percentage points in April. The unemployment rate rose from a mere 3.5% in February, to 4.4% in March, to a painful 14.7% in April. Despite the dire news, however, the White House had predicted an even worse rate of 15.5%, so some were able to view the BLS numbers with a measure of relief.

As mandatory shelter-in-place rules are relaxed, gasoline demand appears to be recovering. The EIA series on product supplied, which is the proxy for demand, showed that gasoline demand rose to nearly 6.7 million barrels per day (mmbpd) during the week ended May 1, after averaging 5.33 mmbpd during the previous four weeks in April. Demand for jet fuel and diesel continue to languish. U.S. crude oil stockpiles grew this week by another 4.59 mmbbls of crude, bringing crude in storage to 532.2 mmbbls. Crude inventories have grown every week this year since the week ended January 24, adding 105.3 mmbbls to supply this calendar year to date. WTI crude futures prices in February were over $50/b, and prices now are striving to get back to half of this price.

The COVID-19 pandemic has not been contained, but many businesses are hopeful that social distancing and extensive cleaning will tamp down additional outbreaks. Seventeen states that are re-opening do not meet the White House guidelines requiring a 14-day downward trajectory in new cases or positive test rates. The Johns Hopkins Coronavirus Resource Center reports today that global cases have risen to 3,866,642, with 270,118 deaths attributed to the virus. The U.S. remains the center of the pandemic, with 1,256,972 confirmed cases and 75,670 deaths. Although cases continue to rise, current data show that the average number of new cases per day is now trending down. Moreover, the FDA has approved a phase 2 trial involving 600 subjects for a potential COVID-19 vaccine by Moderna. Moderna is finalizing the protocol for a phase 3 trial of the vaccine, which it hopes to begin in early summer.

WTI (West Texas Intermediate) crude futures prices opened at $16.78/b on Friday, May 1, and rose to an open of $23.35 on Friday, May 8, an increase of $4.31/b (22.6%). This week appears to be heading for a finish in the black, the second in a row. Two weeks ago, the week ended April 24, brought a $9.64/b price collapse. Current prices are holding above $24/b.

The American Petroleum Institute (API) released information on Tuesday showing another significant crude inventory build, amounting to 8.4 mmbbls. The API also reported a major build of 6.1 mmbbls of diesel. However, contrary to industry expectation, the API reported a drawdown from gasoline inventories amounting to 2.2 mmbbls. The API’s net inventory build was 12.3 mmbbls. Market analysts had predicted across-the-board inventory additions, with a total addition to inventories of 11.9 mmbbls.

U.S. Energy Information Administration (EIA) official statistics showed a smaller inventory build than the API. The addition to crude stocks was 4.590 mmbbls. The addition to distillate stockpiles was a massive 9.518 mmbbls, however. The draw from gasoline stocks was significant, amounting to 3.158 mmbbls. The EIA net result was an inventory build of 10.95 mmbbls. While large, it was slightly below API and industry expectations, which could be bullish news in a bearish market. Crude oil inventories have expanded in 16 of the 18 weeks so far this calendar year, sending a total of 105.26 mmbbls of crude oil into storage, with no end yet in sight.

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. This is the highest level of inventory at Cushing since November 2017. The amount of oil storage at Cushing is approximately 90 mmbbls, and is being expanded to approximately 100 mmbbls, but the remaining capacity is at a premium, and some market participants fear that readily available storage will be full in the coming month. Some surplus crude will be stored in May and June in the National Strategic Petroleum Reserve (SPR).The U.S. government has announced that it 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 week ended April 24 (1.150 mmbbls) and the week ended May 1 (1.716 mmbbls). Current SPR stocks are 637.833 mmbbls.

U.S. crude production now is in decline, but at a slow pace as of the week ended April 24. The EIA reported that U.S. crude production during the week ended May 1, fell to 11.9 mmbpd, down 0.3 mmbpd from the prior week’s level of 12.1 mmbpd. According to the EIA’s weekly data series, U.S. crude production averaged 13.025 mmbpd in February 2020, the highest total ever. Production fell to 12.25 mmbpd during the first four weeks of April.