If you are trying to find your promised oil glut, you’d better keep looking because there is no sign of it anywhere. Not only did you see oil demand in the US stay near records, but supply of also fell and global petroleum liquids production expectations flatlined, and oil prices hit a 7-week high.
Petroleum supply risk keeps rising after news that Ukraine’s military struck two oil pumping stations in Russia’s Volgograd region. A state of emergency was declared in Novorossiisk, a major Russian seaport on the Black Sea that serves as an important hub for oil and grain exports, according to news reports. Russia plans to ban fuel exports for non-producers and will extend its gasoline export ban until the end of 2025.
There’s no doubt that right now, the Russian hits on their oil infrastructure by Ukraine means that that really is Ground Zero. Now, with the possibility of Europe suggesting that they’re going to put tougher sanctions on Russian oil and , it could create a situation where we could start to see a significant change in market psychology and a potential breakout to the upside.
The world can’t afford to lose Russian diesel, and if that happens, we’re going to see the market shift once again. The heating oil crack spreads are starting to rally as its starting to price in some of that uneasiness.
The latest weekly report from the Energy Information Administration found no evidence of an oil glut. U.S. commercial crude oil inventories, excluding those in the Strategic Petroleum Reserve, declined by 0.6 million barrels compared to the previous week. With current inventories at 414.8 million barrels, this puts U.S. crude stocks about 4% below the five-year average for this time of year.
Additionally, total motor gasoline inventories fell by 1.1 million barrels and now sit 2% below their five-year average, with both finished gasoline and blending components showing decreases. Distillate fuel inventories also dropped by 1.7 million barrels, leaving them roughly 8% below the five-year average at this point in the year.
On the other hand, propane and propylene inventories increased by 1 million barrels, making them 12% above the five-year average. Overall, total commercial petroleum inventories decreased by 0.5 million barrels over the past week.
Furthermore, robust demand figures further contradict any notion of a glut. According to the EIA, total petroleum products supplied over the past four weeks averaged 20.5 million barrels per day, marking a 0.9% increase compared to the same period last year.
Motor gasoline products supplied held steady at 8.8 million barrels per day, matching last year’s figures. Distillate fuel supplied averaged 3.6 million barrels per day, which represents a 5.7% decline from the previous year, while jet fuel product supplied was down 1.4% compared to the same four-week period a year ago.
Look at the projected increase in global liquid oil production around the globe, and we’re not expected to see any significant new additions in production throughout the entire year. Next year, in other words, we’re seeing production globally flat line with the lack of investment in petroleum still causing a lag.
China’s demand, of course, continues to stay strong as it continues to import a lot of oil, and it’s coming from some of the most amazing places.
According to Javier Blas, China is now using a new route for its Iranian oil purchases. The term “Indonesia” is being used in place of “Malaysia.” Last month, China imported 2.7 million tons (about 630,000 barrels per day) of crude oil labeled as “Indonesian”—a figure that far exceeds Indonesia’s actual production.
So I guess it’s a great day if you want to make Indonesian oil production great. I think Malaysia’s going to be feeling left out because it was so amazing that they were able to export three times the amount of oil than they could actually produce.
As I have said before, the soft underbelly of the entire complex is still the distillate inventory. Market increases in the crack spreads are becoming apparent, and what we are going to see is if we get a substantial decrease from Russian oil production or if they ban diesel exports, this market is going to tighten up in a hurry.
Crude prices are at the upper end of the trading range, and if we can break above this area, a run towards $70.00 isn’t out of the question. If we fail here, we will still be locked in that trading range. The market’s inability to fall below $60.00 a barrel would give the market a very solid floor at that point, but it won’t take that much to light a fire under this market, as inventories are tight. It wouldn’t take much to push this market to that $70 barrel area.
Gas prices on the futures are steady to higher as the demand expectations going into winter continued to stay strong, and at least for now, the market expects there’s a possibility that the increase in demand will stay. Ahead of expected record production, prices are collapsing, which means they need to build some new pipelines, don’t you think?
The other key thing, of course, is going to be watching the weather, which is going to keep the Fox Weather app humming all weekend. Fox Weather is reporting that “Tropical Storm Humberto is expected to strengthen into a powerful major hurricane by the start of next week. By the start of next week, forecasters say Humberto could reach major hurricane strength with winds of at least 115 mph.
Today is the day to get fed up because we have Fed speakers up to our ears speaking throughout the day. Some people are fed up that the Fed just talks too much, and others are going to be breaking down each word to get a sense as to whether the is going to get more aggressive on rates. Check my trade levels for the Fed Speakers schedule.