Review Of Oil Trading Markets - 2024 - 10th to 14th June

Another strange week for oil!

You could be forgiven for thinking the last 5 trading days was a good week for the bulls with ICE Brent closing $2.69 higher, and products soaring higher….except for the most important one, dear old gasoline, that reliable leader of product prices and flag bearer of the barrel, which seems to be still flooding its engine rather than firing into life!

What’s gone wrong?

The biggest consumer of gasoline, the USA, is in fact doing a pretty fair job of starting the summer gasoline season with current demand at a decent 9.1 million barrels per day, the highest in a year, that’s not bad at all, the only problem with that is US refiners are producing 9.8 million barrels a day, and running at 95% of refinery capacity to meet the ?summer driving season, which incidentally started 3 weeks ago!?

The knock on impact of that is US gasoline stocks built 2.6 million barrels during the last week and at 233.50 million barrels are at their highest inventory level since early March this year.

One alarming note for the gasoline bulls comes in the form of PADD 3 the area of the U.S. which covers the main U.S. Gulf oil refining area, crude oil inventories there are at their highest level since April 2023 and conveniently hidden in this week’s rise in overall US crude oil stocks of 3.7 million barrels is a 3.1 million barrel rise in PADD 3!

This tends to suggest US refiners are going to keep the accelerator pedal flat down on the boards leaving gasoline production too high against a consumer demand level that’s doing well but needs a rubber ring to stop it drowning in potential oversupply ….Joe Biden will be a happy man, gasoline oversupply means lower prices at the pumps…. in theory !!

Bottom line suggests that whilst gasoline demand is pretty good, the gasoline bulls need a hurricane or some other climactic disruption to slow US Gulf gasoline production as quickly as possible before the so called summer driving season fades into Autumn and peak gasoline demand pops like a balloon facing off with a sharp pin.

Meanwhile, luckily for the oil bulls, most of the traditional expert forecasters have predicted that global oil demand will continue to grow in the coming years, (nothing new here!) anyone with an EV look away now!.

Stanchart leads the way with yet another “you wait and see how demand will pick up and supply will tighten” hymn from their rather predictable hymn sheet likely cut into the shape of a charging bull by now!

The OPEC Secretariat has forecast demand growth of 2.247 mb/d in 2024, StanChart at 1.719 mb/d, the EIA’s forecast is 1.43 mb/d while Paris-based International Energy Agency (IEA) currently has the lowest 2024 demand growth forecast at 1.33 mb/d.

For 2025, the OPEC Secretariat forecast is 1.847 mb/d; StanChart's at 1.424 mb/d while EIA 2025 demand growth forecast is 1.379 mb/d.

Inevitably one way or the other OPEC will remain high profile in nudging banks, traders and investors into bullish mode, and whilst they’ve had their moments during the last two weeks, the facts suggest their task still remains an uphill slog!?

Whilst this week’s ICE Brent close of $82.62 a barrel looks a good platform to launch another bull?run, we shouldn’t ignore the ICE Brent close for the last 6 weeks to keep things in perspective ……

$82.96, $82.79,$83.98,$81.62,$81.11 and $79.62!!

One way and another OPEC+ cuts and Middle Eastern tensions reduced global crude supply by nearly 6%, but oil prices have dropped roughly 10% since peaking in early April.

Brent crude, the global benchmark, has fallen from $91 in April to just over $82.50 per barrel, while West Texas Intermediate (WTI) dropped from nearly $87 to $78, whilst it feels OPEC are continually pushing for $90 a barrel but according to the?International Monetary Fund, Saudi Arabia needs Brent crude at around $81 per barrel to balance its budget, but the problems remain given OPEC has had an increasingly difficult time controlling prices due to the ongoing expansion of U.S. crude production, and whilst Brent crude oil has always been considered the Global benchmark for crude oil pricing, WTI Midland is now screeching up behind it to have a bigger influence and say on dated Brent prices, which?brings us to the current state of the physical crude oil markets, in a nutshell light sweet crudes appear oversupplied with most demand really leaning towards sour crudes.

WTI Midland is ruling the roost, it’s cheaper than most and because of that is nudging other light grades to one side, the chief loser in this appears to be Nigeria with a large number of crude cargoes unsold for July (some report more than 20) with a heavy Mediterranean demand programme being supplied by cheaper grades than some of those originating from West Africa (Angolan grades being the likely exception).

In summary whilst this has been a better week for oil markets with prices rising through the 7 days, we shouldn’t get carried away and think we are at the beginning of another bull run, although the current market price level feels more stable than it did two days after the opec meeting when ICE Brent hit $76.75!?

Prices remain heavily influenced and dampened by a buoyant USA crude production level at a solid 13 million barrels a day and a refinery system running at full throttle.

The effective integration of WTI Midland prices into the dated Brent price is leaving refiners with a cheaper, higher quality feedstock to run their refineries, something all of us in any walk of life would welcome with open arms for any commodity!

This week’s closing guide prices:

ICE Brent 82.62 (+2.69)

WTI 78.45 (+2.66)

ICE gas oil 762.25 (+34.25)

Euro Mogas swaps 800.50 (-7.50)

Euro Naphtha swaps 658.50 (+22.50)

Nymex gasoline 2.3996 (+01 cents per gallon)

LPG swaps 542.50 (+26.50)

Opec basket 82.81

Credit - Robert Haynes - Silvergreen Energy Ltd