President Donald Trump stopped the oil rally in its tracks after tweeting that “We protect the countries of the Middle East, they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices! We will remember. The OPEC monopoly must get prices down now!” Yet, was the President just talking to OPEC or was it really directed at Saudi Arabia? Saudi Arabia has sent strong signals that they are happy with where oil is and would feel comfortable will oil above $80 a barrel. That of course did not sit well with President Trump who has executed oil sanctions on Saudi Arabia’s adversary Iran, incurring political risk for himself and his party as we get closer to the Mid- Term elections in the United States. The President is suggesting that the U.S. has done its part defending the agreement that the Saudi’s made with President Franklin D Roosevelt, and especially now when the U.S. is using its power and influence to get the entire world to stop buying Iranian oil, so they will not be able to easily fund the proxy wars they are fighting against Saudi Arabia in Yemen and in Syria. Now after all the U.S. support in those efforts, the President wants the Saudis to ramp up output to make up for what we are losing from Iran.
Yet, that may be a futile effort. If the Saudi’s look to go it alone and try to raise their output, they would have to exceed their record production that they have had a very hard time maintaining. In fact, it is likely that if the Saudi’s raised output by 1.5 million barrels a day they would be tapped out leaving no spare production capacity in America’s long-time strategic ally.
That’s why the oil market did not break as bad as it did after the July 4th Presidential tweet against OPEC, which helped start an almost $10 a barrel correction. Of course, the timing was different and the Fourth Of July is the traditional peak of the summer driving season. This time the President is trying to shake down OPEC ahead of refinery maintenance season, but with refiners trying to max out as much diesel as they can, it might not have the same bearish impact as the tweet had before.
Besides, the real reason for oil’s rally is rip roaring demand. U.S. Inventories went, in just a year, from one of the biggest oil gluts in history to a market where U.S. supplies are 3% below normal and the globe is on track to be under supplied later this year and into next year.
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Natural Gas rallied after the EIA reported that working gas in storage was 2,722 Bcf as of Friday, September 14, 2018, according to EIA estimates. This represents a net increase of 86 Bcf from the previous week. Stocks were 672 Bcf less than last year currently and 586 Bcf below the five-year average of 3,308 Bcf. At 2,722 Bcf, total working gas is below the five-year historical range.
Gasoline is the only petroleum product where we seem to have adequate supply. John Kemp at Reuters writes that “U.S. refiners have processed a record volume of crude in the last three months, reversing the previous shortage of distillate but leaving the country with record gasoline stocks at the end of the summer driving season. Fuel availability has been helped by the absence of a direct hurricane hit on the major refining centers located on the coasts of Texas and Louisiana, in stark contrast to the refinery closures caused by Hurricane Harvey in 2017.
Refiners have carried on processing at elevated rates well after the end of the normal summer driving season and into September to rebuild previously depleted distillate stocks (https://tmsnrt.rs/2MKZGBz).
But the now-plentiful supply of gasoline, and to a lesser extent distillate, implies refiners will have to cut processing more sharply than usual over the next couple of months to avoid creating a glut of refined products.
U.S. refiners processed 17.4 million barrels per day (bpd) of oil in the week to Sept. 14, up from 15.0 million bpd in 2017 (impacted by Hurricane Harvey) and 16.6 million bpd in 2016. Refiners produced a seasonal record 5.5 million bpd of distillate last week, up from 4.5 million bpd in 2017 and 5.0 million bpd in 2016, according to the U.S. Energy Information Administration. Distillate stocks have risen to 140 million barrels up from a recent low of just 114 million barrels in mid-May (“Weekly Petroleum Status Report”, EIA, Sept. 19). Distillate inventories are now just 6 million barrels below the 10-year average compared with a deficit of 25 million barrels as recently as July 20. Distillate availability has been improving significantly over the last eight weeks after deteriorating continuously since the start of the year. But the consequence of heavy refining activity to produce distillate has been the emergence of a potential over-supply of gasoline.
Gasoline stocks remained plentiful throughout the peak summer driving season and are now at a record for this time of year. Gasoline inventories stood at 234 million barrels at the end of last week, up from 216 million at the same point in 2017, 227 million in 2016 and a 10-year average of 215 million.
Refiners use the shoulder season between the end of summer driving demand and the onset of winter heating to undertake scheduled maintenance and change refinery configurations. Crude processing typically declines by almost 1 million bpd between the middle of August and early October, before starting to pick up again from the start of November, but this year the decline may need to be deeper and/or longer than average, otherwise the market will head into the year-end with too much fuel, especially gasoline.
Interesting take. Yet, what we are hearing from industry sources is that this may be a light refining season. U.S. production of gasoline is exceeding demand, so we will need to export more gasoline. Stay tuned and keep your car filled up