War, Supply Routes, And Storage Tightness Fuel Oil Market Strength

Petroleum futures are headed decidedly higher so far this morning with the crude oil contracts poised to top 10% gains on the week. There isn’t much complexity surrounding this week’s bullish sentiment: the shooting started so the ships stopped.

Chevron made headlines yesterday, along with ConocoPhillips and BP, announcing their intent to invest in a couple of Iraqi oil fields and join a consortium dedicated to investigating alternative export routes for the country’s oil. The move mirrors other countries’/companies’ campaigns to bypass the on-again-off-again Strait of Hormuz amid the U.S.-Iran war, and while some have found success in bypassing the war-stricken chokepoint, exports throughout the region still remain abysmally low.

The system hanging around north Florida has shifted gulf-ward over the last couple days, but still given a 20% chance of organizing into something dangerous over the next week. While the storm brewing near Cape Verde has the hallmarks of potential problem given its location, it isn’t expected to move much over the next seven days and will likely dissipate out at sea before threatening landfall.

The EIA is taking the opportunity the war has provided to explain the anatomy of oil storage, and the relationship between then WTI-Cushing spread and tank bottoms. As seen in yesterday’s DOE data, inventory levels in Cushing, OK (the delivery point of the WTI futures contract) has set new seasonal 5-year lows for the past eight weeks.

Gulf Coast physical gasoline and diesel has flipped reference months today and will be setting their prices against the September contracts for the next 30 days or so. All other regions/products (save for LA CARB/EPA ULSD) are still priced against August, so continue looking to the prompt month for relevant physical price action.