Analysis by Dr. Nancy Yamaguchi
Prices are volatile as the markets react to swift-paced news headlines. Constructive data at the fundamental level appears to have been trumped by political turmoil, causing prices to weaken.
At the fundamental level, prices received support yesterday when the Energy Information Administration (EIA) released its weekly supply report. The EIA data show across-the-board inventory drawdowns for the second week in a row—and the only two times this has happened all year. The EIA reported drawdowns of 1.753 million barrels (MMbbls) crude, 1.944 MMbbls diesel and 0.413 MMbbls gasoline. The official EIA data reversed Tuesday’s price downturn, which began when the American Petroleum Institute (API) data reportedly showed a crude stock build of 0.882 MMbbls, a diesel stock build of 1.8 MMbbls and a gasoline stock draw of 1.8 MMbbls.
U.S. crude inventories have now decreased for six weeks running. This is a major turnaround from the first quarter, when stockpiles grew every week except for one (and the drawdown that week was a mere 0.24 MMbbls). During the first quarter of 2017, crude inventories expanded by 52.4 MMbbls. In contrast, during the second quarter to date (through the week ended May 12), stockpiles have been reduced by 12.6 MMbbls.
Moreover, U.S. crude production dipped by 9 thousand barrels per day (kbpd) during the week ended May 12. This broke a streak of 12 weeks with production increases.
Although U.S. total product demand declined during the week, demand for the key fuels gasoline, jet fuel and diesel crept up.
Therefore, the U.S. fundamentals are supportive of prices this week. The price weakness countering this is most likely caused by political turbulence surrounding the Trump administration. The Justice Department appointed a special counsel, ex-FBI Director Robert Mueller, to oversee the investigation into the Russia issues. Members of Congress are seeking testimony from fired FBI Director James Comey regarding his memo alleging potential obstruction of justice by the President. The Dow Jones Industrial Average tumbled 377 points in the past two days.
West Texas Intermediate (WTI) crude prices have retreated to approximately $48.50 per barrel (/b) this morning. WTI opened at $48.93/b today, an increase of 70 cents, or 1.45%, above yesterday’s opening price. Current prices are $48.52/b, 55 cents below yesterday’s closing price. Prices yesterday opened weakly, but they rose upon the favorable set of EIA supply and inventory data. However, both crude and product prices weakened overnight and in early morning trade.
Diesel opened at $1.5334/gallon this morning. This was a significant increase of 3.04 cents (2.02%) above yesterday’s opening price. Current prices are $1.5206/gallon, a decrease of 1.29 cents from yesterday’s closing price.
Gasoline opened at $1.5982/gallon today, up 0.54 cents, or 0.34%, from yesterday’s opening. Prices are $1.5815/gallon currently, a drop of 2.12 cents below yesterday’s close.