OPEC+ Cuts Output, Refineries Completing Turnaround, Resurgent Demand Bullish for RBOB
- OPEC+ pulls 1.2 million barrels of crude oil from market
- Oil in storage falls 10.7 million barrels
- Crude oil inventories decline 6.4 million barrels
- Natural gas storage very long
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In a market already beset with low inventories, OPEC+ will take 1.16 million barrels from global markets. This reduction will be in addition to earlier announced cuts that will withhold 3.7 million barrels from world markets through December.
WTI crude oil futures reacted strongly, rallying over $5 on the announcement to $81.69. Product futures added a dime. One investment bank raised its forecasts for Brent to $95 for 2023 and $100 for 2024.
OPEC+ cut production because it could – there are few new alternatives for refiners. And WTI prices falling to $70 a few weeks age could also have jolted the group into action. The decision was also contrary to efforts by central banks to contain inflation.
A loss of 10.7 million barrels of petroleum in storage during the week ended March 24 supported gains in spot futures prices for WTI crude oil and RBOB gasoline.
The U.S. Petroleum Balance Sheet for the week ended March 24, 2023, recorded declines in commercial crude oil stocks (-7.5 million barrels.) Gasoline stocks fell 2.9 million barrels and propane supplies fell 2.5 million barrels. Small gains in distillates and other oils were not enough to offset reductions in crude oil inventories.
Most of the reduction in crude oil inventories came on the Gulf Coast, where 6.4 million barrels cleared storage. In turn, this reflected a substantial increase in refinery use in PADD III. Facilities ran at 94.7% of capacity during the week ended March 24, a week-on-week increase of 3.4 percentage points.
WTI spot futures ended the week of March 31 at $75.67. This was a weekly increase of $5.41 (6.4%,) and reversed the sharp drop in prices seen in the weeks before.
The increase in Gulf Coast refinery use comes after extensive turnaround-related cuts to output in the first quarter of 2023. They included maintenance postposed over the past two years that was necessitated by tight labor and materials supply flowing out of Covid-19.
Inventories of gasoline remain tight and demand is picking up. EIA data show gasoline demand at 9.1 million barrels daily for the report week. It is 650,000 barrels daily greater than last year at this time. The decline in stocks, then, comes at an inopportune time.
RBOB spot futures ended March at $2.70. This was its second consecutive weekly advance, bring prices up twenty cents over that time. Spot values are flirting with resistance, but will need to exceed $3.00 for a definitive break above longer-term resistance. A gap at $3.1870 has yet to be filled.
Supply/Demand Balances
Supply/demand data in the United States for the week ended March 24, 2023, were released by the Energy Information Administration.
Total commercial stocks of petroleum fell (⬇) 10.7 million barrels to 1,237 billion barrels during the week ended March 24, 2023.
Commercial crude oil supplies in the United States were lower (⬇) by 7.5 million barrels from the previous report week to 473.7 million barrels.
Crude oil inventory changes by PAD District:
PADD 1: Plus (⬆) 0.4 million barrels to 6.9 million barrels
PADD 2: Down (⬇) 0.6 million barrels to 122.6 million barrels
PADD 3: Down (⬇) 6.4 million barrels to 268.8 million barrels
PADD 4: Plus (⬆) 0.1 million barrels to 25.5 million barrels
PADD 5: Down (⬇) 0.8 million barrels to 50.0 million barrels
Cushing, Oklahoma, inventories were down (⬇) 1.6 million barrels from the previous report week to 35.2 million barrels.
Domestic crude oil production was down (⬇) from the previous report week at 12.2 million barrels daily.
Crude oil imports averaged 5.325 million barrels per day, a daily decrease (⬇) of 847,000 barrels. Exports decreased (⬇) 348,000 barrels daily to 4.584 million barrels per day.
Refineries used 90.3# of capacity; 1.7 percentage points higher (⬆) than the previous report week.
Crude oil inputs to refineries increased (⬆) 437,000 barrels daily; there were 15.813 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, rose (⬆) 315,000 barrels daily to 16.261 million barrels daily.
Total petroleum product inventories fell (⬇) by 3.2 million barrels from the previous report week, falling to 763.6 million barrels.
Total product demand increased (⬆) 449,000 barrels daily to 20.476 million barrels per day.
Gasoline stocks decreased (⬇) 2.9 million barrels from the previous report week; total stocks are 226.7 million barrels.
Demand for gasoline increased (⬆) 185,000 barrels per day to 9.145 million barrels per day.
Distillate fuel oil stocks increased (⬆) 0.3 million barrels from the previous report week; distillate stocks are at 116.7 million barrels. EIA reported national distillate demand at 3.713 million barrels per day during the report week, a decrease (⬇) of 261,000 barrels daily.
Propane stocks decreased (⬇) by 2.5 million barrels from the previous report week to 56.2 million barrels. The report estimated current demand at 1.091 million barrels per day, an increase (⬆) of 57,000 barrels daily from the previous report week.
Natural Gas
Natural gas availability could end the 2022-23 injection season at a record high. Reasons for this include expanding production, and reduced low Heating-Degree-Day-induced demand. Shutdown of the Freeport, Texas LNG export terminal backed up natural gas into domestic markets.
These factors are bearish for price. Spot Henry Hub natural gas futures prices broke support at $2.00 last week, moving to $1.944 on Wednesday, before settling the April contract at $1.99. The market is coming into the spring shoulder season. Extended rallies are not common at this time, and last week’s action provided little support for bullish expectations.
The location of underground storage in the United States is central to understanding how natural gas might be distributed regionally. The EIA has designated five storage regions in the United States. Among them, the South-Central region has the largest design capacity. Its ability to hold supply is more than 1,550 Bcf of natural gas. Thirty percent of this capacity is high deliverability salt caverns, and flows of natural gas are more sensitive to temperature changes than in other regions. The caverns also allow more withdrawal and injection cycles each year. Warmer weather this winter inhibited withdrawals, setting record low withdrawals.
A comfortable supply situation for natural gas fits into the expansion of overseas markets for American natural gas. Markets in western Europe are in play now, as well as are more established trading partners in Asia. Exports to Latin America have expanded in response to electric power generation needs heightened by regional drought.
According to the EIA:
Net [natural gas] withdrawals from storage totaled 47 Bcf for the week ended March 24, compared with the five-year (2018–2022) average net withdrawals of 17 Bcf and last year’s net injections of 15 Bcf during the same week. Working natural gas stocks totaled 1,853 Bcf, which is 321 Bcf (21%) more than the five-year average and 442 Bcf (31%) more than last year at this time.
The average rate of withdrawals from storage is 20% lower than the five-year average so far in the withdrawal season (November through March). If the rate of withdrawals from storage matched the five-year average for the remainder of the withdrawal season, the total inventory would be 1,853 Bcf on March 31, which is 321 Bcf higher than the five-year average of 1,532 Bcf for that time of year.
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