Energy market 'awash' in diesel fuels as jets demand drops
Swelling U.S. oil stockpiles are signalling that a difficult path lies ahead for OPEC and its allies who are trying to stabilize the market with record output cuts.
Just weeks after American explorers began shutting in wells in the wake of a slump in demand, a recent recovery in crude is prompting some producers to turn the taps back on at a time when a fresh onslaught of the virus challenges pockets across the country.
A month into the state’s reopening, Florida this week reported the most coronavirus cases of any seven-day period. In Texas, hospitalizations on Tuesday jumped to the highest since the pandemic emerged, rising for a third consecutive day. California’s hospitalizations are at their highest since May 13.
Those gains in cases are leading to concern that oil’s rebound may unwind if governments implement lockdowns again. The OECD is forecasting a sharp contraction in the global economy this year that could get worse if there’s a second wave of virus infections.
“Demand isn’t coming back fast enough, and supply is coming down more slowly than the market needs,” said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management in Seattle.
American oil stockpiles reached 538.1 million barrels last week, the highest level in data going back to 1982, according to Energy Information Administration data, even though American production has fallen by at least two million barrels a day since mid-March.
In the U.S., more excess oil is being sent for storage to the Strategic Petroleum Reserve, which rose by 2.2 million barrels last week to the highest level since November 2018.
Rising inbound crude shipments drove stockpiles to a record in the Gulf Coast, with the region accounting for the lion’s share of the inventory increase. Net petroleum imports stand at the highest since August.
“The net import number really drove the build,” said Brian Kessens, a portfolio manager at Tortoise Capital Advisors. “Next week we’d expect to see elevated imports again before they drop, so prices should be range bound for the next week,” he said.
That means investors may see more volatility in U.S. West Texas Intermediate futures, which tumbled as much as 3.1 per cent on Wednesday before ending 1.7 per cent higher in New York at US$39.60 a barrel. Global benchmark Brent crude for August settlement added 55 cents US to US$41.73 on the ICE Futures Europe exchange.
Brighter spots in the EIA report helped buoy prices, notably “gains in diesel and gasoline demand on the week and an increase in refinery crude demand,” said BNP Paribas analyst Harry Tchilinguirian.
Other oil-market news
-Goldman’s commodities business generated more than US$1 billion in revenue this year through May as oil prices crashed below zero
Asian diesel prices flipped into backwardation for the first time in three months as demand rebounded after the easing of lockdowns, compared with other regions that are grappling with oversupply of the fuel.
-The chaos engulfing OPEC member Libya continues, with the Sharara and El-Feel fields stopping production after brief restarts.
--With assistance from Mike Jeffers and Olivia Raimonde.