Oil prices are trying to bottom, again, as OPEC Plus tries to calm the markets surrounding its oil production cut tapering plans and after the Energy Information Administration (EIA) report that suggests that while gasoline demand and diesel demand fell, the demand for those mysterious “other oils” surged.
Oh yes! The EIA has heads spinning again with data and adjustment numbers that, to say the very least, are raising some skeptical eyebrows.
Not only did the EIA have to use a massive 17.1-million-barrel adjustment number to make the data fit in all the right places, but the petroleum product demand data also raised more questions than answers.
The EIA seemed to feed into the weak gasoline and diesel demand mantra that has been permeating the marketplace, but other data seems to raise questions as to whether that data was really telling the whole story.
The EIA said that gasoline demand fell last week on the week that ended May 31st by 20300 barrels a day to week to 8.916 million barrels a day.
They also said that distillate demand fell from 429,000 barrels a day to 3.367 million barrels a day.
Yet overall oil product demand rose because of the other oils category that a massive demand spike of 1.481 million barrels a day to 5.93 million barrels a day that shattered the seasonal record.
That surge in demand for other oils that include the gasoline additive naphtha as miscellaneous other products includes all finished petroleum products not classified elsewhere, including petrolatum, lube refining byproducts (aromatic extracts and tars), absorption oils, ram-jet fuel, petroleum rocket fuels, synthetic natural gas feedstocks, and specialty oils.
And we all know that we see a lot of demand for these other oils on Memorial Day weekend. Maybe some use them to cook out and BBQ! That is perhaps why the demand for those other oils is at an all-time high for this time of year.
And so, while the market has been bemoaning what they perceive as weak gasoline and diesel demand it’s amazing that we saw overall demand for all petroleum products hit 20.510 million barrels a day.
The data suggests that the demand numbers that have been perceived as weak are not as weak has a market has thought.
And as my good friend Tim Dallinger who is a mechanical engineer and a hydraulic specialist and energy analyst points out, the weak demand mantra the trade has been concerned about doesn’t really fit the reality. He points out that if you look at crude inputs from the EIA they are at a seasonal record.
Considering a 4-week moving average, the EIA product demand proxy matches 2019 high’s. Dallinger did say that the moving average for implied distillate demand is down but is only just 0.356 MMBD from the all-time peak.
EIA said that crude oil refinery inputs averaged 17.1 million barrels per day, which was 61 thousand barrels per day more than the previous week’s average. Refineries operated at 95.4% of their operable capacity last week. Gasoline production decreased last week, averaging 9.5 million barrels per day. Distillate fuel production increased last week, averaging 5.1 million barrels per day.
And if you look at the supply according to the Energy Information Administration, we are below average in every major quarter category, even more so if you consider that the Biden administration has drawn down the strategic petroleum reserve to historically low levels.
The EIA said that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.2 million barrels from the previous week. At 455.9 million barrels, U.S. crude oil inventories are about 4% below the five-year average for this time of year. Total motor gasoline inventories increased by 2.1 million barrels from last week and are about 1% below the five-year average for this time of year. Distillate fuel inventories increased by 3.2 million barrels last week and are about 7% below the five-year average for this time of year.
So, it’s very possible that the market has way overplayed itself to the downside based on this perception that the demand for oil products was falling apart. Perhaps the market got it wrong.
OPEC is suggesting that the market got it wrong and tried to ease concerns about the oil production cut taper tantrum that they created at the last OPEC meeting.
Yesterday Saudi Arabia raised demand concerns when they lowered their Arab-like crude official selling price to northwest Europe and Asia. Some people theorized it was because they were worried about weakening demand. Yet OPEC suggests that the move was not inspired by weak demand nor was it an attempt to increase their market share but more than anything the move was to maintain their current market share.
This morning OPEC Secretary General Haitham Al Ghais of Kuwait addressed the OPEC oil taper tantrum. Not only did he say that he expects to see OPEC's first quarter oil demand growth to grow by an impressive 2.3 million barrels per day he also wanted to remind people that OPEC had the option to pause or even reverse the will output increase.
He also said that even as they cut prices to Europe and Asia, he wanted to point out that he is not trying to increase open market share. I guess that means he’s just trying to defend what share they have.
Russian Deputy Prime Minister Alexander Novak also seemed to suggest the oil reaction to the oil taper was overdone by saying, “OPEC could react very quickly to changes in the oil market.”
So, if the unemployment report doesn’t scare the market into believing that the Fed is going to be unable to raise interest rates, more than likely the oil and petroleum products have more upside than downside from this point.
This comes against a backdrop of rising geopolitical risk. Joe Biden authorized Ukraine to use U.S. weapons to strike targets inside Russia, a major shift in American policy that has raised the risk of further escalation in the war that started on Biden’s watch.
Now Russian President Vladimir Putin has threatened Germany and the United States as a response he could provide long-range weaponry to NATO adversaries to strike targets in the West in response to the move by the two countries to authorize Ukraine to use arms it provided on sites within Russian territory.
True perhaps and to accentuate that threat, Putin is sending warships to the Caribbean for war games,
The AP reports that “The U.S. has been tracking Russian warships and aircraft that are expected to arrive in the Caribbean for a military exercise in the coming weeks, in a Russian show of force as tensions rise over Western military support for Ukraine, U.S. officials said Wednesday. The ships also are expected possibly to make port calls in Venezuela and Cuba, as Russia establishes a Western Hemisphere military presence that the senior Biden administration officials said was notable but not concerning. And you know if the Biden administration tells us not to be concerned there’s nothing to worry about. Other than the possibility of nuclear annihilation.
Massive Venezuelan oil and product exports impacted US supplies last month as they dumped supplies as quick as they could ahead of U.S. sanctions. But even as U.S. sanctions go into place, it isn’t stopping Venezuela from negotiating with the US. We’re at least getting their high-paid lobbyist to do so.
Bloomberg News reports that, “Venezuela’s opposition is ramping up lobbying efforts in Washington, trying to persuade the Biden administration to intervene in the court-ordered sale of Citgo Petroleum Corp.’s parent company in the US. The company is the South American nation’s most important foreign asset, and its shares are due to be auctioned by July 15. The opposition fears Nicolas Maduro could blame them for Citgo’s loss ahead of crucial presidential elections set for the end of next month.
Natural gas is getting hot as the weather heats up, driving electricity and cooling demand. Fox Weather is reporting that, “Dangerous heat continues to build across much of the West this week as an early-season heat wave grips the region.” Many areas will see temperatures in the 90s and triple digits later this week according to FOX Weather meteorologists.
On the positive side Fox Weather points out that despite the concerns about a record hurricane season, so far, while the season has just begun, we are lucky. Fox Weather said, “We’re just five days into the start of the Atlantic Hurricane season, and yet amazingly with no named storms so far, it’s the latest we have gone in the year without one in a decade.
Natural gas today will get its weekly inventory report Reuters reports that U.S. utilities likely added a smaller-than-usual 90 billion cubic feet (bcf) of natural gas into storage last week, a Reuters poll showed on Wednesday. That compares with an injection of 105 bcf during the same week a year ago and a five-year (2019-2023) average increase of 103 bcf for this time of year. The forecast for the week ended May 31 would increase stockpiles to 2.885 trillion cubic feet (tcf), about 14.5% above the same week a year ago and about 24.8% above the five-year average for the week.