(The views and opinions expressed in this article are those of the attributed sources and do not necessarily reflect the position of Rigzone or the author.)
In this week’s edition of hits and misses in the oil and gas industry, regular market watchers at Rigzone focus on the reversal of the Brent-WTI oil price gap, the start of the season US hurricanes, gas prices and more. Read on for more details.
Rigzone: Which market expectations have actually happened over the past week – and which expectations have not?
Tom Seng, Director – School of Energy Economics, Policy and Business, Collins College of Business at the University of Tulsa: In crude markets, the Russian-Ukrainian conflict seemed to take a back seat after another bad week on Wall Street, the inflation measures taken by the American Fed and the rumors of a possible lifting of American sanctions against Venezuela. , which would increase global supply. WTI hit a weekly high of around $115.55 a barrel before falling back below $112. Meanwhile, Brent crude hit $115.70 a barrel and also fell to near parity with US quality. The Brent/WTI spread actually reversed at some point this week, which may reflect significantly higher demand in the US as the export economics do not support this close relationship. The US economy took a hit this week as April’s retail sales forecast fell far short of inflationary concerns. Analysts have assumed that the average American spends their disposable income on higher energy and food costs. As a barometer of future energy demand, US stock markets exerted pressure on prices.
This week’s EIA State of Oil report said commercial crude inventories fell 3.4 million barrels last week to 421 million barrels in total, falling 14% below of the five-year average. API said stocks fell 2.4 million barrels while the WSJ survey showed a gain of 1.4 million barrels. Refinery utilization increased again to 91.8% from 90.0%. Total motor gasoline inventories fell 4.8 million barrels, falling eight percent below the average of five for this time of year. Distillate inventories actually increased by 1.2 million barrels, but are now 22% below the five-year average. Crude oil stocks at Cushing Key, OK. hub fell from 2.4 million barrels to 26 million barrels, or 35% of available capacity. The United States Strategic Petroleum Reserve fell by 5.0 million barrels and is now reduced to a remaining total of 543 million barrels. US oil production fell 100,000 barrels per day to 11.8 million barrels per day from 11 million barrels per day at the same time last year. Crude oil imports fell from 6.33 million barrels per day to 6.27 million barrels per day, while US exports averaged 2.9 million barrels per day. The number of oil and gas rigs in the United States rose by nine last week to a total of 714, up 261 from a year ago. The EIA forecasts a production increase of 142,000 barrels per day from shale oil fields in the United States for the next month. Total shale crude production is expected to reach 8.8 million barrels per day in June, the highest level since March 2020. The Permian Basin alone is expected to reach a record high of 5.22 million barrels per day.
The three major U.S. equity indices continued their downward trend this week, trading at 12-month lows largely on retail sales figures and fears that the Fed’s rate hike could hurt development economic. The US dollar is also falling this week, which could help crude find a bottom. At a time when the crude market cannot handle any supply disruptions, the University of Miami Hurricane Center predicts the formation of a “loop current” in the Gulf of Mexico in the United States. The development eerily resembles that of 2005, when Katrina struck. GOM temperatures are already warmer than normal with a broad band already “looping” further into the gulf. The official start of hurricane season in the United States is June 1 and lasts until November 30. Even the development of tropical systems in the GOM necessitates the closure of offshore platforms as personnel are withdrawn for at least a few days.
The average price of gasoline at the pump in the United States continues to reach new all-time highs, reaching $4.56 per gallon this week. According to AAA, all 50 US states now have prices above $4.00 per gallon. In what could be a promising sign for gasoline, June RBOB futures are trading above the USLD, reversing the trend of recent weeks. While this change does not reduce gas mileage for the summer, it does indicate a change in perceived demand for both refined products. Concerns remain over low diesel inventories which hit a 17-year low last week.
Gerrad Heep, National Energy Partner – Audit, Grant Thornton: Fueled by lingering fears of global supply constraints, the price of gasoline has reached new highs in the United States. This relationship hasn’t been closely aligned lately. The uncertainty, for a number of domestic and global reasons, is likely pushing producers to be more cautious and intentional in their approach to mergers and acquisitions.
Rigzone: What were the market surprises?
Sing: You still can’t take your eyes off the natural gas futures market which has managed to stay above $8.00 this week as new concerns arise over Russian exports. As Finland and Sweden consider joining NATO, tensions between these countries and Russia will only escalate and Putin has already made veiled threats. The EIA’s weekly natural gas storage report showed an injection of 85 billion cubic feet last week, up from 71 billion cubic feet last year and a five-year average of 87 billion cubic feet. Total storage is 17% lower than last year and 15% lower than the five-year average. Global demand for LNG remains strong and the EU is dependent on US LNG exports as part of its plan to wean off Russian natural gas imports. In the United States, warm weather is already increasing the use of natural gas for power generation.
Heep: On May 13, the national average gasoline price hit a new record high of $4.43 per gallon. On the same day, the Department of the Interior announced that three high-profile leases in Alaska and the Gulf of Mexico were cancelled. I did not expect that.
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