Latest Market Commentary

May 15, 2019

The inventory report from the API said that crude stocks were up by 6.8 million barrels. That is a much higher level than the average estimate for today’s DOE report for a build of 1.5 million barrels. The crude stocks at Cushing, Oklahoma were up 1.4 million barrels. Gasoline stocks were down 1.1 million barrels and the estimate for today’s DOE report is a 1 million barrel decline. Distillate stocks in the API report were down 2.1 million barrels and the outlook for today is a 193,000 barrel decline.

Adding some support to prices was the EIA monthly report on US crude oil production which showed a decline from January to February of 187,000 bpd down to a total of 11.68 million bpd.

According to Reuters survey, OPEC’s oil supply may hit a four-year low in April due to further involuntary decline in Iran and Venezuela and output restraint by Saudi Arabia. The Reuters survey showed that OPEC produced 30.23 million bpd in April, down 90,000 bpd from March and the lowest OPEC total since 2015. The survey suggest the Saudi Arabia and its Gulf allies are maintaining even larger supply cuts than called for by OPEC latest deal. In April, the 11 OPEC members bound by the agreement achieved 132% of pledged cuts, compared with 145% in March due to higher production in Nigeria and small increases in Saudi Arabia and Iraq. Iran’s crude oil exports fell in April to the lowest daily level this year, while in Venezuela, supply fell by 100,000 bpd due to the impact of US sanctions on PDVSA and a long-term decline in production.

Bank of America Merrill Lynch said Iranian oil production will fall to 1.9 million bpd in the second half of 2019 from 3.6 million bpd in the third quarter of 2018. Despite this, the bank said it expected a nearly balanced market in 2019 as output from OPEC and the US rises.

BNP Paribas said it expected oil prices to increase in the near term as crude producers were over-tightening the market in the face of unplanned supply outages and resilient oil demand.

Phillips 66’s Chief Executive, Greg Garland, said refiners will move to maximum diesel production on a year-round basis as a mandated switch on January 1, 2020 to lower sulfur marine fuel tightens diesel market.

The Fed will announced their interest rate decision today and the overall outlook is that there will be no changes. Fed Chairman, Jerome Powell will hold a press conference after the decision is released and will certainly be asked about Presidents Trumps call for a “one point” cut in rates. 

There was some increased fighting in Venezuela yesterday as opposition leader Guaido called for military support to overthrow President Nicolas Maduro. This attempt failed as the military stayed in support of Maduro. The Venezuelan situation continues to create uncertainty for the market.

The outlook for propane is that inventories will continue to grow with the average estimate for stocks to be up 1.65 million barrels.

The Bloomberg estimates for today’s inventory report are crude up 1.283, gasoline down 1.403, and distillates down 514,000.

Tim Danze, MFA Oil Company Hedging Manager