Demand for Energy Products is Decimated
March 19th, 2020
The DOE inventory report called crude oil stocks up 1.954 million barrels and the crude stocks at Cushing, Ok were up 563,000 barrels. Gasoline stocks are down 6.18 million barrels and distillates were down 2.94 million barrels. Refinery runs were unchanged at 86.4% and this number will go down in the coming weeks as refinery margin for gas or the gasoline crack spread is now negative. Several reports have said many refineries are cutting back 10% to 20%.
Propane stocks were down 301,000 barrels. The stocks of propane in the Midwest were down 125,000 barrels and the Gulf Coast stocks were up 167,000 barrels. Total stocks are at 66.730 million barrels which is 15.620 million barrels more than last year at this time. Current estimates are that we will go into next winter’s season with record level of propane near 110 million barrels.
Energy market were beat down again yesterday as supplies continue to build and demand destruction continues to fall. Air travel has slowed dramatically, and reports indicated that many companies, including BP and Shell, are looking to store jet fuel on the water. Jet is not alone as demand for petrochemicals, gasoline, and other petroleum products also decline rapidly. WTI crude oil and Brent crude oil have fallen 54% and 50% respectively in just this month alone.
Goldman Sachs estimate a global demand loss of 8 million bpd of crude oil and notes that this is accelerating at unprecedented levels.
US benchmark WTI crude oil fell to its lowest level since 2002 to settle at $20.37 per barrel yesterday. This comments from a Reuters story: As storage reaches capacity, a slide toward $10 per barrel is possible, according to some investors and analyst. That last happened during the 1998 glut before both oil companies and oil producing nations curbed supply. Another comment from the Reuters story: “We believe we have not seen the worst of the price rout yet, as the market will soon come to realize that it may be facing one of the largest supply surpluses in modern oil market history in April,” said Rystad Energy’s Head of oil Markets Bjornar Tonhaguen.
Even with the massive fall in price Saudi Arabia still seem solid in their commitment to make many in the energy space but specifically Russia and US shale feel some pain. Saudi Arabia said last week that they would sustain higher oil output planned for April into May, and that they were very comfortable with $30 dollar per barrel oil. Saudi Arabia’s Finance Minister, Mohammed al-Jadaan announced a nearly 5% cut in the state’s 2020 budget, amounting to 50 billion riyals ($13 billion), and said expenditures would be reassessed as low oil price and the coronavirus outbreak threatens growth. These comments suggest that Saudi Arabia is in this for a longer period of time and they will use their abundant supplies to ride out this storm.
It appears that companies are doing all they can to store crude oil and other petroleum products around the world. The tanks at Cushing, Oklahoma one of the biggest storage hubs in the world and the delivery point for the United State benchmark WTI crude oil futures contract, are expected to fill to capacity as early as May , traders have estimated.