Outlook: Crude and distillate futures are trading lower for the fourth straight day and gasoline is down for the third time in four days as demand concerns have overshadowed the conflict in the Middle East. World leaders have implored Israel not to retaliate against the Iranian strikes over the weekend, however, Israeli Prime Minister Benjamin Netanyahu brushed off calls from allies and said Israel will decide whether and how to respond. 48 countries including the U.S. condemned the attack on Israel by Iran as they try to deescalate the situation, while the EU and G7 have both discussed tougher sanctions on Iran. With a subdued conflict in the Middle East, investors have switched their focus to inventory and demand trends. The EIA reported an unexpected rise in U.S. crude inventories, with stocks reaching their highest level in 10 months. In the U.S., strong crude production, lower than average distillate demand, and lower than normal refinery utilization are adding to the bearish sentiment in the energy sector. Globally, oil demand also continues to be weaker than expected. According to JP Morgan, global oil demand has been running 200,000 bpd below their forecast since the beginning of April. The bank also anticipates a lower annual increase than it initially expected. Look for oil markets to remain sluggish in the coming weeks unless we see increased escalation in the Middle East.
Crude
- The US has reinstated sanctions against Venezuelan oil due to a failure to meet the previously negotiated election criteria. The 6-month sanction relief gave the country ~$740mm in revenue.
- Russian crude exports are down 25% from the 5-year average for this time of year.
- Risk premium continues to pull out of energies as days pass without an Israeli retaliation.
- The CME FedWatch tool forecasts an 88% chance at least one rate cut will occur this year while bets on how soon continue to slide further deferred.
- The EIA reported crude stocks rose 2.7 million barrels last week vs +1.4mb est.
- US net crude exports rose just shy of 2 mbpd last week to 7.7 mbpd.
- Total products supplied averaged 19.8 mbpd last week, down 0.2% from the same period last year.
- As of 7:41 am CST: Brent crude oil down $0.60 to $86.68, US dollar index up $0.041 to 105.992 while the nearby e-mini S&P 500 futures contract is up 8.25 to 5070.00.
Diesel
- The EIA reported diesel stocks fell 2.7 million barrels last week vs -0.3mb est.
- Four-week average diesel demand is averaging 3.5 mbpd, down 8.4% from the same period last year.
- Prompt diesel futures closed below trendline support yesterday.
- Diesel remains in contango in the prompt which signals ample supply.
Gasoline
- The EIA reported gasoline stocks fell 1.2 million barrels last week vs -0.9mb est.
- Four-week average gasoline demand is averaging 8.8 mbpd, down 1.9% from the same period last year.
- Prompt RBOB futures closed below the 9-day moving average yesterday.
Propane
- Conway is trading at .7475 while Belvieu is trading at .7825.
- Conway Swap Oct24-Mar25 strip indicative midpoint ~.8100.
- Conway propane is trading at 40% to WTI.
- The EIA reported propane stocks rose 3.9 million barrels last week which exceeded the median industry estimate.
Natural Gas
- Overnight weather runs added 7 TDDs to the two-week forecast.
- US natural gas options hit a daily record volume with 694,000 contracts traded on April 16th.
- Reuters estimates nat gas stocks rose between 48 and 56 Bcf last week.
- The EIA will report inventories at 9:30 am CT.
Continuous Daily HO: Diesel futures closed below trendline support yesterday and are finding further weakness today. The dec23 low is in play for a downside target near-term.
