Oil Prices Surged Back North Of $100/Barrel This Morning

Just when it seemed like maybe things were calming down a little, Oil prices surged back north of $100/barrel this morning, and distillates rallied 32 cents on the day, an increase of more than 50 cents from Tuesday’s lows, despite clear warnings that another COVID wave is coming. 

The latest price spike could be caused by fading optimism for a cease fire in Ukraine, or more signs that the world hasn’t seen the worst of the diesel supply crunch as cargoes purchased before sanctions crippled Russia’s exports are still offloading.   It could also be driven by technical factors after the weekly trend-line that’s held prices up for 4 months survived the manic meltdown we witnessed last week. 

While diesel stocks didn’t increase by much last week, they did mark the first time so far in 2022 that inventories haven’t declined. The increase seems due to a huge drop in the DOE’s implied demand estimate, which went from above the 5 year seasonal range in last week’s report, to below that seasonal range yesterday.  Given the notorious inaccuracy of the weekly estimates, it seems plausible that we’ll see a big bounce back in consumption next week, along with another drop in inventories which remain well below their normal range, and may help explain part of why ULSD prices have bounced so sharply the past two days.  

Also note the substantial drop in refined product imports in the charts below and it’s easy to see why the East and West coast markets are both struggling with supply as cargoes have been diverted to other countries since the start of the war.

Gasoline inventories are continuing their seasonal drawdown as they normally do during the spring RVP transition, with West Coast inventories seeing the biggest weekly drop, and helping explain the huge spike in basis values over the past week. 

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